Fair Market Value Legal Definition

The general question of exactly how unimproved contaminated land should be valued is, of course, a more conceptually difficult problem. Reference to the constitutional "fair market value" standard is important. Section 110, subdivision (a) of the Revenue and Taxation Code provides that (except as otherwise modified by the operation of Prop. 13 pegging value to a 1975 lien date), "'fair market value' means the amount of cash or its equivalent that property would bring if exposed for sale in the open market under conditions in which neither buyer nor seller could take advantage of the exigencies of the other, and both the buyer and the seller have knowledge of all the uses and purposes to which the property is adapted and for which it is capable of being used, and of the enforceable restrictions upon those uses and purposes." Moreover, section 51, subdivision (a)(2), provides that "full cash value" (which, according to 110 is the same as "fair market value") as defined in section 110 must take "into account reductions in value due to damage." Section 110, with the gloss put on it by section 51, has implications. the most significant for our purposes here is that the statute's hypothetical buyer has no special reason to desire any given piece of property. The hypothetical buyer for assessment purposes, for example, is not under any special constraint to buy the property because of the need to expand into neighboring property, or because its location is peculiarly suited for its business. Thus, it might be the case, conceivably, that a particular buyer (a true "greater fool" in investment parlance), under the delusion that a leprechaun had buried a pot of gold on otherwise contaminated property, might pay more for it than its uncontaminated value minus the present cost of cleanup. But that would not be an accurate approximation of open market value as defined by section 110 because this very peculiar buyer is acting out of secret knowledge or delusion. The statute contemplates a situation in which all information regarding any possible pot of gold on the property is already on the table. Because the statute contemplates a lack of "exigencies," it is very hard to imagine that any potential rational buyer in the real world paying more than the unimpaired value of the property--at least vacant, non-income-producing property such as in the case before us--minus cleanup, either by way of a straight reduction in purchase price, or by way of some sort of an indemnification agreement or other consideration to that effect, from the seller. A buyer might pay less (because of the stigma effect, and for an adequate reserve against Comprehensive Environmental Response, Compensation, and Liability Act liability), but would have no reason to pay more. (See Westling v. County of Mille Lacs (Minn. 1996) 543 N.W.2d 91, 92-93 affirming assessment based on taxpayer's expert who not only deducted present value of future costs of cleanup but a "stigma discount" in addition.) After all, there will always be the fear that not all the pollution was cleaned up, and therefore a certain reserve would be prudent. (See San Diego Gas & Electric Co. v. Daley (1988) 205 Cal. App. 3d 1334 253 Cal. Rptr. 144 public fear of electromagnetic radiation, even if irrational, could still present compensable loss of fair market value; see also Casparian, Good Deed Punished (Jan. 31, 2000) Cal. Law Business at p. 20 "A landowner who cleans up contamination caused decades ago by an unknown prior owner might be shocked to find himself labeled a hazardous-waste generator and then taxed as such.".)