“Russell is a risk taker,” Alex exclaimed! “Russell, the answer for $200 is ‘About 10%.’ What is the question?”
In case you are not a television aficionado, Alex Trebek is the host of Jeopardy, one of the longest running television game shows.
Our “competitor” Russell, a printing equipment sales professional, thinks he’s on solid ground selecting the Leasing category. Russell has been selling equipment for 10+ years. He uses leasing to close sales when buyers say, “Your price is too high.”
Russell responds confidently, “Alex, the question is ‘What is Fair Market Value?’”
No, I’m sorry Russell, you are only half-right.
Real Life
Fair Market Value is seldom “about 10%.” Although many leasing salespeople tell customers that 10% is their best estimate of what they’ll pay at end of lease.
Here are four Fair Market Value definitions. You should understand all of them if leasing is a one of the ways you finance equipment additions.
- Fair Market Value. No process defined. No parameters. Buyers beware. Read the contract and see what other options you have. Negotiate whatever the leasing company tells you.
- Mutually Agreed to Fair Market Value. The leasing company determines the purchase price, not the customer. The lease agreement doesn’t contain a process to determine the price. Some lessors may feel that “I am the leasing company and you’re not. It’s my way, the highway or worse.” Worse may be a 12-month lease renewal followed by another Fair Market Value purchase option.
- In-Place, In-Use Fair Market Value. This is tricky. Lessors may add extra costs not financed in the lease. If equipment requires added expense to install and de-install, such as rigging, site preparation, special electrical wiring, then these expenditures may be added into the now “not-so-fair market value” option.
- Greater of Fair Market or 20%. The Fair Market Value may be more than 20%. If no process is defined, the price is usually higher than customers expect.
These four definitions are not the entire list of purchase options. If you find others in your leases, please share them with me. I will give you proper credit for your findings in the next blog.
Remember my motto: Everything is negotiable, if only you ask!
It’s best if you negotiate before you sign the lease. However, if you’re facing the end of lease Final Jeopardy Round, call us. We can help you renegotiate and save money.
Read more about Fair Market Value in this article.