Fair Market vs. Replacement Value

I just got a copy of Concinnity #17's January 2014 survey. The surveyor, Bob Ptak, stated that the estimated fair market (FM) value was $138K while the estimated replacement (R) cost was $500K. Combined these two numbers give us an interesting ratio, the FM/R. For #17 the FM/R = $138K/$500K= .276. In the box below is the FM and R data for all the surveys on LNVT.org—clearly we need to collect more surveys.

FM/R	Hull #	Date of Survey	FM	R
1.00	#34	4 November 1985	$95K	$95K
0.64	#46	27 January 1993	$135K	$210K
0.79	#66	12 September 2005	$178K	$225K
0.39	#74	23 January 2006	$175K	$450K
0.45	#42	March 2009	$190K	$425K
0.28	#17	17 January 2014	$138K	$500K
0.33	#74	11 March 2014	$125K	$350K

The first thing that strikes me is that replacement cost (R) has gone up dramatically while selling prices have not. This means inflation, which has increased the replacement cost by five times, has had little effect on sales prices. On in the case of a boat, depreciation trumps inflation. It's worth keeping tabs on FM/R as it will let us know if inflation adjusted sales prices are increasing or decreasing. An FM/R > 1 would be consistent with a collector's item. Clearly LNVTs are not collectibles—yet.

When considering fair market (FM) valuation it's important to know why the survey was done. FM valuation for an insurance driven survey may be lower than in a purchase survey. In the first case, a lower valuation translates to lower insurance premiums. In the second, a higher valuation. i.e. loan value, makes it easier to borrow a greater amount.