Fair Market Value vs. Orderly Liquidation Value
Often times liquidating medical equipment and other assets can be a complex and confusing process.Much of the value that is received for the item depends on what kind of transaction is taking place.There are definite differences between these variables and must be understood to fully get a grasp on what it means to liquidate assets.Hopefully the brief explanation below can help your organization better understand the liquidation marketplace.
Fair Market Value (FMV) is the market value of an asset based on a transaction between two willing and unpressured parties.This doesnt factor in needing to sell an item on a deadline or the factors that often include a medical equipment sale like de-installation and re-installation.This value is best utilized on a peer-to-peer sale when the seller is selling the item(s) to a buyer who will keep them in their current location.This would most likely be the case when a hospital system or healthcare management firm purchases the assets of a particular doctor or center that will keep them in use at their current location.A value based upon this type of transactions will reflect higher values because the items are bought where they are being used and taken care of.
On the other hand, Orderly Liquidation Value (OLV) is when assets are being sold outside of the peer-to-peer relationship and instead sold in a specific time period.This is most common when an asset is sold to a refurbisher or medical equipment buyer on the secondary market.OLV then factors the costs involved in the possible de-installation of the items (if necessary), certifying, refurbishing, warehousing, and marketing costs for re-sale.When all of these potential costs are factored in, the seller has to realize the value will be a reflection of these costs and likely be less than an FMV.These sales are typical when a facility has no more use of the asset (due to new technology purchase, etc.) and when items come back from leases or are repossessed due to default in payment.These items then have to be put through several cost inducing steps that are then factored into the OLV.
As you can see, FMV and OLV are two separate valuations, but both essential in understanding expectations.We hope that the brief summation of the differences in valuations above can help your organization better understand what is realistic in the type of sale/purchase that they are embarking upon.MERC can help your organization with these types of transactions and help provide both Fair Market Valuations and Orderly Liquidation Values.Contact us with any questions or inquiries, wed enjoy helping you in any way possible!