Yarilet Perez is an experienced multimedia journalist and fact-checker with a Master of Science in Journalism. She has worked in multiple cities covering breaking news, politics, education, and more. Her expertise is in personal finance and investing, and real estate.
A fair market value (FMV) purchase option is the right, but not the obligation, to buy a leased asset at the end of the lease term for a price that represents the item’s then-current worth.
The fair market value purchase option does not provide the purchase price in advance, but so long as the assessed fair market value is accurate, the consumer will not overpay for the asset and the lessor will not receive less than the asset is worth.
Types of assets that may come with a fair market value purchase option include automobiles, real estate, and heavy equipment.
A fair market value buyout allows a customer to utilize the equipment for a designated number of months with end-of-lease options to continue to lease the equipment, return the equipment and upgrade to new equipment, or purchase the equipment at the then determined fair market value price of the equipment. A fair market value lease also is known as an operating lease.
A common alternative to the fair market value purchase option is the fixed price purchase option, which allows the lessee to know for certain what the cost to purchase the property at the end of the lease term will be. Because it is impossible to determine an item’s fair market value in advance of the item’s purchase date, a purchase price cannot be established in advance with a fair market value purchase option.
Another alternative to the fair market value purchase option is the $1 buyout lease, also called a capital lease. It is similar to purchasing equipment with a loan. Typically, there is a higher monthly payment compared with an FMV lease, but at the end of the lease term, the lessee purchases the equipment for $1.
Since it is very similar to taking out a loan on a piece of equipment, this type of lease is often used when a business plans to keep the equipment for a long period of time, or when equipment obsolescence isn’t a concern.
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