Fair Market vs Donor Value on Donations

The definition of Fair Market Value(FMV) According to WikiPedia

"Fair market value (FMV) is an estimate of the market value of a property, based on what a knowledgeable, willing, and un-pressured buyer would probably pay to a knowledgeable, willing, and un-pressured seller in the real estate market. An estimate of fair market value may be founded either on precedent or extrapolation. Fair market value differs from the intrinsic value that an individual may place on the same asset based on their own preferences and circumstances."

That's pretty straight forward as far as I'm concerned.  Ask any 3 people what they would pay for it and you're probably pretty close to the value your guests will figure its worth auction night.
In the auction business, we tend to refer to intrinsic value as "donor value".  Just because a donor tells you something is worth $3000.00, does not necessarily make it so.  Further, we shouldn't expect to sell it for 70% of that value.  Occasionally, a donor exaggerates the value of an item.  This happens for many reasons and it's not our place to question their motives.  But we cannot let that value affect the placement of that item in auction, the opening bids or the expected sales price.

 

Especially key in our Silent Auction items.  If the Donor Value is exaggerated, we must adjust all calculations to be based on Fair Market Value.  Many of us calculate our "Opening Bids" at 30-40% of FMV.  If the donor value is $1000, but the FMV is $600, you would start the bidding at $300-$400 on something worth closer to $600. That's not much wiggle room if using $50 bid increments.  Let's not forget that the average silent auction item will sell around 70% of that FMV. 
 
Here's the math:
  • Donor Value is $1000
  • Fair Market Value(FMV) is $600
  • Average selling price on silent auction items is 70% of FMV.  
  • That's an average selling price of around $420 for this item.
  • If we use a Formula of opening bids at 40% of Donor Value, that has us starting at $400 and an expected selling price of $420.  
  • Good luck convincing your Silent Bidders they are getting any kind of deal on that item.
The lesson here?  Don't be afraid of converting an over-valued Donation to Fair Market Value before you start setting opening bids and increments.