Fair Market Value Discount Rates: Analysis of Market Sales Data

Abstract

SPE MemberIntroduction. The appraisal of oil and gas properties for sale or acquisition; financing; and for estate and ad valorem taxes is dependent on the knowledgeable and appropriate use of Fair Market Value (FMV) discount rates. Information from over 200 FMV property acquisitions in California from 1983 through 1994 has been obtained and evaluated to derive the effective FMV discount rate for each transaction. The analysis of the sales is based on acquisition appraisal data provided by the buyers of the properties.Because the discount rates and other financial and economic factors are derived from actual sales, the information is true market data. The results of the analysis of this data are generic and may be applied to fair market value appraisal of other properties irrespective of location. Further, sufficient analysis of this data has been done to allow definition of adjustments that are sometimes necessary to comply with regulated appraisals such as ad valorem tax.Background of Study. The data and analysis presented in this paper are excerpted in large part from the March, 1994 study of oil and gas property transactions done by RJM&A for the Western States Petroleum Association (