U.S. Home Prices Show Three-Month Gain

U.S. home prices rose by 1.6% from June to July, according to The Standard & Poor’s Case-Shiller Home Price Index, which tracks the value of residential real estate in 20 metropolitan regions across the United States. Prices increased in 18 out of 20 of the cities tracked by the Index, one more than in June. This is the third straight monthly increase, indicating a sign of stabilization in the real estate market.

Many believe that the $8,000 first-time home-buyer tax credit that was part of February’s stimulus package has contributed to these gains. Currently, the tax credit is scheduled to expire on November 30, 2009. If it is not renewed, market prices will likely decrease.

Experts, however, urge caution when praising the three-month gain. Some analysts are concerned that there could be more foreclosures on the horizon and fewer home purchases, given the uncertainty of the reauthorization of the first-time home-buyer tax credit and the reported decrease in the Conference Board’s consumer confidence index, which decreased to 53.1 in September from the 54.5 reading in August. And, home prices are still 13.3% lower than this time last year.

As we discussed earlier this year, real estate appraisal fraud is more of a threat in times of economic uncertainty so it is important for potential home buyers, owners, CPAs, and attorneys, faced with the challenge of accurately appraising real estate assets, to find appraisers who have experience in their specific regions.

By: Present Value

Tags: Conference Board, Real Estate, Standard & Poor’s Case-Shiller Home Price Index, U.S. home prices
Posted in Real Estate, Real Estate Appraisal, Valuation Fraud | 1 Comment »

Recent Articles About HVCC Changes

We’ve written several posts this year about the HVCC changes and how they affect the appraisal industry. You can read those articles here. Over the last two weeks, there have been a couple of articles written about how those changes affect not only appraisers, but home owners.

The Seattle Times published an article that followed one appraiser’s experience of the industry before and after the HVCC changes designed to keep brokers and appraisers from working too closely together went into effect. For this particular appraiser, appraising is a family business and he describes not only his worries for the industry as a whole, but his personal pain as he watches the HVCC changes’ negative effects on the industry he loves.

The article in The Seattle Times briefly mentions the effect of the HVCC changes on consumers, but another article published in the Chicago Tribune goes into a more in-depth exploration of consumers’ worries. This article discusses a man’s experience selling his home in Massachusetts. He had a successful sale, but found that the HVCC rules designed to protect him made the experience more stressful than it had to be.

To read the article in The Seattle Times, click here. The Chicago Tribune’s article can be found here.

By: Present Value  

Tags: HVCC, HVCC Changes, present value, Real Estate Appraisal
Posted in HVCC, Real Estate Appraisal | 2 Comments »

Types of Appraisal Value

When it comes to determining the value of a property, there are a number of types of value that a real estate appraisal can determine. The most common types are listed below.

• Market value is the price at which an asset would trade in a competitive auction setting. Market value is usually synonymous with open market value or fair value.

• Value-in-use is the net present value (NPV) of a cash flow that an asset generates for an owner under a specific use. Value-in-use is usually below the market value of a property.

• Investment value is the value to one particular investor, and is usually higher than the market value of a property.

• Insurable value is the value of real property as indicated by an insurance policy. Generally it does not include the site value.

• Liquidation value may be analyzed as either a forced liquidation or an orderly liquidation and is a commonly sought standard of value in bankruptcy proceedings. It assumes a seller who is compelled to sell after a period of time that is less than the normal market time frame.

By: Present Value

Tags: appraisal value, Insurable Value, market value, value-in-use
Posted in Appraisal Terms, Real Estate Appraisal | 1 Comment »

Appraisal Organizations Address Letter to the FHA

A number of appraisal organizations, including the Appraisal Institute, the American Society of Appraisers, the American Society of Farm Managers and Rural Appraisers, and the National Association of Independent Fee Appraisers, released a memo to the Federal Housing Administration (FHA) regarding the Home Valuation Code of Conduct (HVCC) and FHA’s possible adoption of elements of the HVCC.

The letter calls the FHA to enhance appraiser independence and to more closely monitor mortgage brokers and appraisal management companies. Below are the specific, overarching recommendations made in the letter:

• Recommendation 1: Establish the conditions for mortgage broker participation in the FHA appraisal ordering process.

• Recommendation 2: Supplement state and federal appraiser independence requirements with more robust appraiser independence requirements specific to FHA.

• Recommendation 3: Rescind Mortgagee Letter 97-46.

• Recommendation 4: Develop rules and expectations relating to appraisal management companies.

To view the full letter to the FHA, visit the Appraisal Institute website, here.

To view Present Value’s previous blog posts on HVCC changes and industry reactions, click here, here, and here.

By: Present Value

Tags: Appraisal Institute, Appraisal Terms, FHA, HVCC, HVCC Changes
Posted in Appraisal Terms, HVCC | 4 Comments »

New SBA Changes to go into Effect October 1, 2009

We’ve been following the changes that the Small Business Association (SBA) has made to its SOP and have written about them here and here. The changes have resulted in businesses having difficulty securing funding, especially funding to put toward a business acquisition, so the SBA agreed to review its changes and decided to put amended changes into effect on October 1, 2009. 

 One of the major amendments has to do with the policies that affect the financing of goodwill. The SBA’s changes that were announced in March said that only 50% of a 7(a) loan could go toward financing goodwill, and that 50% could not exceed $250,000. The recent amendments say that if the value of a business’s goodwill is less than $500,000, 100% of a loan can go toward financing it, with no restriction. If the amount of goodwill exceeds $500,000, a lender may still finance 100% of goodwill as long as the purchaser agrees to put at least 25% of the purchase value into the transaction as equity. A full list of the SBA’s SOP can be downloaded and viewed here.

 Although these changes may make securing loans easier, it is still important that any business that will be involved in a transaction be properly valued.

 By: Present Value

Tags: SBA Changes, SBA SOP changes, SOP Policy changes 2009
Posted in Business Valuation, SBA SOP changes | No Comments »

The Education of an Appraiser

We’ve blogged about many different aspects of real estate appraisal, but where does it all begin? What does it take to become a real estate appraiser? And, what should you look for before engaging an appraiser? It can be somewhat confusing, so here is a brief overview of the education of an appraiser.

To become a real estate appraiser in Massachusetts, the first step is getting a trainee license. A trainee license is awarded after the successful completion of 75 hours of appraisal-specific education. This consists of three classes – Basic Appraisal Principles (30 hours), Basic Appraisal Procedures (30 hours), and National Uniform Standards of Professional Appraisal Practice (15 hours). Trainees must attend all of the classes and pass a written exam to receive credit.

After obtaining the license, the trainee needs to find an appraiser to be his or her mentor. This appraiser will teach the trainee the tricks of the trade and help with experience hours that need to be completed. The supervising appraiser signs off on all of the trainee’s work.

Many trainees get jobs at real estate appraisers’ offices, and others choose to pursue trainee positions at banks. Banks hire trainee appraisers who have obtained their trainee licenses directly, and the trainee gets an education and paid at the same time.

Once the required hours are completed, the trainee submits an application to the Massachusetts Board of Registration of Real Estate Appraisers. He or she then takes the real estate appraiser exam, a multiple answer test that covers the full spectrum of knowledge and skill set for a real estate appraiser.

Upon successfully passing the exam, the trainee receives his or her certification and is a licensed Massachusetts real estate appraiser. Different states have different requirements and certifications, and it’s possible for a real estate appraisal company, like Present Value, to be licensed in multiple states.

By: Present Value

Tags: appraiser, certification, education
Posted in Real Estate Appraisal | 1 Comment »

What We Appraised on Our Summer Vacation

We have written a number of blog posts on machinery and equipment appraisals, including What’s It Worth? and Certified Machinery and Equipment Appraisal. We have talked about the complexities of appraisals for custom-made equipment, such as dies, molds, or custom machinery, and the importance of working with an experienced appraisal company to ensure that you know the value of all your machinery and equipment.

Recently at Present Value, we have worked on some fascinating appraisal projects that we thought might of interest to our readers and also show the breadth of businesses that we work with on a daily basis.

The first project of interest was a radiology clinic, where we appraised the various X-RAY, CAT-scan, and MRI machines that comprise the assets of the business. Another cool project was at a construction company. In this case, we appraised all of the large earth-moving equipment – backhoes, front-end loaders, and dump trucks – and smaller equipment like Bobcats. One of the most fun projects was for a movie theater company that had a dozen theaters and one IMAX theater that we appraised.

Although these projects varied widely in scope and by industry, they demonstrate that understanding the value of machinery and equipment assets are of paramount importance to any business.

By: Present Value

Tags: certified machinery and equipment appraisal, Machinery & Equipment, machinery & equipment appraisals, Machinery and equipment appraisal, present value
Posted in Custom Appraisal, Machinery & Equipment, Machinery & Equipment Appraisal | No Comments »

Article for the NEBBI Newsletter

Chris Kinzie and Chris Spinelli of Present Value had an article featured in the latest National Equipment and Business Builders Institute (NEBBI) newsletter. The NEBBI is an international organization that trains and certifies certified machinery and equipment appraisers to perform appraisals that comply with USPAP standards, and Present Value is proud to be an NEBBI member. NEBBI members share resources and information, cross sell, and network, all in an effort to improve their individual businesses and the machinery and equipment appraisal industry as a whole.

In Present Value’s article, Kinzie and Spinelli discuss the company’s evolution from strictly a real estate appraisal company, to a more diversified company that offers a full complement of appraisal services, including machinery and equipment appraisals. They share with the NEBBI members some tips about creating a business plan, creating a business identity, and creating an effective marketing plan. The full article follows:

The Successful Partnership Between Chris Kinzie, CMEA, San Diego, CA and Chris Spinelli, CMEA Newton, MA 

Becoming a CMEA has been a huge benefit to our business. Our background is in real estate appraising and many years ago we wanted to diversify our business into other areas of appraising.  As members of the NEBBI we have some of the best resources at our fingertips.  We have this incredible forum to exchange information, network, cross sell, and grow.  We’ve worked with several other members on joint ventures, included several more on individual assignments, all the while watching the impact on our bottom line increase.  It wasn’t a fast process for us and we had to learn our in and outs as any other business.  Our hope is that our insight in this article might benefit you and your situations. We thought this article would be good to focus information toward newer members getting their business off the ground or others who might be struggling to get things going.  It benefits us all when more of us are doing better.

One of the best places to start when reworking your current situation or just new in the business is to “form a plan.”  Sit down and write out a simple business plan which would include what you want to do with this designation and education, research your competition, research the marketplace, who would be your potential clients, decide where you want to specialize (this is an important one), set your time goals, set your pricing for services, financial goals (short-term, long-term), create a budget for your business infrastructure and your marketing.  

Create an identity for yourself in this business. It gives you focus and credibility, which is crucial to success.  You need to stand out in some way from the rest.  One way is to specialize in a particular field of M&E appraising or consulting, another might be to offer a boutique of services.  Pull from your background, your interests, or your former career contacts.

Marketing is by far the hardest thing to grasp in business, especially if you’re working the business and your marketing at the same time.  We’ve discovered the more personal the interaction with a potential client the greater the chances for turning a lead into a job in a shorter timeframe.  People need to know who you are and what you do.  People especially listen more when you have something to offer rather than something to sell.  Don’t sell someone your service, offer them help.  A great way to get in front of people is join a networking group … join a few.  It gives you a voice, adds credibility, and provides a new sphere of influence that will grow.  You might have to visit a few but when you find the right one it can do wonders.  If you don’t know where to start try www.meetup.com.  
 
Another source for leads is your own accountant, CPA, or tax attorney.  They may not give you business but they’re a resource to interview and show you the inside track of how they think and where there may be a need.  Talk to everyone!  If you have a fear of speaking in front of people or making presentations, one resource to work on is www.toastmasters.org.
 
Follow up, follow up, follow up!  If you do a letter campaign, phone campaign, or any other type of marketing you had better follow up on those leads.  Be consistent, dedicate time, and keep in contact.  If you’re not good at marketing, join forces with someone who is.  

So who needs you? Many lenders have approved lists but not like residential appraisers are used too.  You might get a call from the lender or they may make the borrower find you. The commercial lending department is a good place to start for the decision maker. From our experience it doesn’t matter which appraisal discipline you work in, typically it comes down to pricing and turn-around time who gets the job.  With regard to attorneys and accountants, we’ve found it really depends on their clientele.  Most areas have a book of lists, which most business journals have.  This has been a good resource to find more about the local and regional leaders in industries.   The larger the company the more complex and diverse the needs are for your services; if you’re targeting large corporations you may be looking at multiple decision makers and multiple streams of income.  

We hope some of the ideas that have helped us be more successful will help you.  Be good and remember to be honorable and upfront in all that you do.

By: Present Value

Tags: equipment appraisal, Machinery and equipment appraisal, machinery appraisal, NEBBI, NEBBI Newsletter, USPAP standards
Posted in Machinery & Equipment Appraisal | 1 Comment »

Bankruptcy & Restructuring Valuations

Bankruptcy is the process of handling the debt of a business that is not able to pay its liabilities. When a business enters bankruptcy proceedings, it is critical to assess the value of the business and its assets to begin the restructuring process. There are three general types of bankruptcy in which businesses will end up:

Chapter 7 — Also known as “liquidation bankruptcy,” in Chapter 7 filing, a court-approved trustee takes over the assets of the business in bankruptcy, liquidates those assets, and pays off the business’s creditors.

Chapter 11 — Also known as “reorganization bankruptcy,” a Chapter 11 filing allows for a business that wishes to continue operations to do so while repaying creditors through a court-approved reorganization plan. Chapter 11 filings allow struggling companies to survive, but is costly and time consuming. To qualify for Chapter 11 and avoid Chapter 7, the business must demonstrate (through proper bankruptcy appraisals) that the value of the reorganized business is much greater than the liquidation value of the business.

Out-of-Court Restructuring — This option is cheaper than a Chapter filing and provides the business with more flexibility; the business maintains greater control over its operations. In a typical out-of-court restructuring, a creditors’ committee is formed to negotiate with the business, which must disclose financial and other information to the committee to come to a settlement.

In any bankruptcy or restructuring proceeding, expert asset appraisals and business valuations are crucial to maintaining the confidence of the creditors’ committee or trustee. Whether filing under Chapter 7 to liquidate assets or under Chapter 11 to reorganize, be sure to use a full-service appraisal firm with expertise in bankruptcy appraisals and valuations.

By: Present Value

Tags: bankruptcy, Chapter 11, Chapter 7, restructuring
Posted in Business Valuation, Uncategorized | 1 Comment »