Wholesale Vs. Fair Market Value Definition

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Wholesale Price

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  Wholesale is generally what a retailer pays for goods that will be marked up and sold to customers of the retailer. The markup from wholesale to retail is the money the retailer's business generates in revenues to pay for the operation of the business and, hopefully, produces profits. BusinessDictionary.com defines wholesale price as "the cost of a good sold by a wholesaler. The wholesaler will usually charge a price somewhat higher than he or she paid to the producer, and the retailer who purchases the goods from the wholesaler will increase the price again when they sell the good in their store."

Fair Market Value

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  Fair market value is more akin to retail prices than wholesale. The IRS defines fair market value as "the price that property would sell for on the open market. It is the price that would be agreed on between a willing buyer and a willing seller, with neither being required to act, and both having reasonable knowledge of the relevant facts."

Uses of the Terms

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  In automobile insurance, the "fair market value" of a car is the price the insurance company will place on a wrecked car's value for insurance replacement cost purposes, and this price is often lower than the wholesale price the dealer would pay for the car.
  
  In the coin or numismatic industry, "fair market value" is what the dealer charges for coins he has bought at wholesale.

Misleading Use

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  The term "wholesale price" is often used in advertising instead of "discounted price" even though the price is not the true wholesale cost. This misuse is intended to make the consumer feel as if she were paying the best price possible for the item.
  
  Some real estate is advertised as "Wholesale homes - below fair market value!" On the other hand, the term "wholesale" as applied to homes usually indicates a fixer-upper that is in bad shape.

Significance

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  Fair market value can be important in challenging property assessments, particularly for computer equipment since the rapid pace of technology advances can make even recently purchased computer equipment obsolete. In valuing assets for tax assessment, loss calculations or liquidation, the fair market value can be extremely important. Another example of how important fair market value can be with regard to tax assessment can be seen in the drop in the value of houses from 2005 to 2009. Property values determine property taxes, and if the property value on a house was established at the high of the market, the property tax will be much higher than if the house value were reassessed to the house's current fair market value.