What Does Sentimental Value Mean?
Sentimental value is the value of an object that is derived from personal or emotional association rather than its material worth. It is the inflated opinion value based on what the sellers want. The fair market value differs from sentimental value, as both parties to a transaction must agree to its worth.
Divestopedia Explains Sentimental Value
Fair market value is the price that an interested and informed seller, but not a desperate seller, would be willing to accept in the open market and that an interested and informed buyer, but not a desperate buyer, would be willing to pay. This would be the price at which the property could change hands. However, sellers often attribute too much sentimental value to their businesses. These overpriced firms tend to sit on the market for a long time, which negatively impacts statistics and gives rise to misconceptions about the value of the firm.
Investor sentiment can also affect the bidding premiums of corporate acquisitions. There is a positive relationship between the amount of an acquisition premium and an investor’s sentiments. When the investor's sentiment is relatively high, the value of the premium is also high. The valuation by bidding firms is also relatively overpriced when the market sentiment is optimistic. On the other hand, when sentiment is low, the pattern reverses. Business owners seek to take advantage of the increasing investor confidence, hoping to maximize their firm’s value and exit with the highest selling price.
The root cause of many goodwill write-offs is over-payment by buyers at acquisition. In contrast, fair market value is what two parties with different interests decide something to be worth when neither is under any compulsion to buy or sell. Though valuation should be an art and not an exact science, the sentimental attachment of the seller from blood, sweat and tears put into the business need to be dismissed.