You may have the option to purchase your leased equipment at the end of your equipment lease at the “Fair Market Value.” There are several types of Fair Market Value and this is the third in our series of end of lease purchase options.
In-Place, In-Use Fair Market Value is an inclusive term that results in a higher purchase price than customers are expecting. It means the value of the asset within the customer’s company while being used for its intended purpose and in good operating condition.
TIP: The In-Place, In-Use Fair Market Value is not the same as the used equipment purchase price that you would receive from a used equipment dealer. The In-Place, In-Use value may include additional costs, which were not included in the original lease financing. Examples of these added costs are training, software updates, electrical wiring, deinstallation, testing and calibration. Ask the leasing company what goes into their formula for the In-Place, In-Use Fair Market Value before entering into the lease.
TIP: Negotiating the In-Place, In-Use Fair Market Value definition is even more critical in complex installations such as for a printing press, blow molding or plastic injection molding, an asphalt plant or a conveyor system. In these situations, extensive amounts of site preparation and expense are incurred and are often not a part of the lease financing.
REAL LIFE: A large insurance provider told me their computer leasing company added in the cost for the insurance company’s IT department employee to load the standard graphics and programs onto the computer upon arrival at corporate headquarters. The insurance company’s employee wage was not financed on the lease. The cost to do this task was an internal company expense. It increased the fair market value purchase price by $75 per computer. How the leasing company came up with this amount is a mystery.
Be sure to see the two previous blogs for the definitions of Fair Market Value and Mutually-Agreed to Fair Market Value. Let me know if you have questions about any of the types of Fair Market Value.