Case Study: Pre-Loan Asset Verification

Asset verification is a significant part of Present Value’s services. We’ve written about it in the past here and here. Today, we’ll highlight a real-world example that demonstrates the importance of asset verification for responsible due diligence.

Present Value had a client who owned a strip mall that included a movie theater. The movie theater began to lose business, the theater owner could no longer pay rent to the property owner, left the strip mall, and defaulted on his equipment loan. According to the terms of the lease, the property owner could take over everything in the property in 45 days.

Present Value was asked to appraise the equipment in the movie theater and came up with a value one-fifth the value of the loan. The reason for the huge discrepancy was that when the movie theater operator took out his equipment loan, he misrepresented the value and type of movie equipment he owned and planned to purchase. As a result, when the theater owner defaulted on the loan, the lender lost quite a bit of money.

This problem could have been prevented if the lender had requested an asset verification prior to approving the loan. If this had been done, the lender would have had assurance that the equipment it was supporting was equal to the value of its loan.

By: Present Value

Tags: Asset Verification, due diligence, lenders
Posted in Asset Inspection, Machinery & Equipment Appraisal | No Comments »

Massachusetts Board of Real Estate Appraisers

The Massachusetts Board of Real Estate Appraisers (MBREA) serves the needs of real estate appraisers, real estate agents, lenders, borrowers, and homeowners.

The MBREA offers continuing education for appraiser licensing and certification, and professional designations for appraisers that satisfy the requirements relating to experience, examination, and demonstration. Education of appraisal professionals is the cornerstone of MBREA’s mission. The association secures approval of its courses and seminars from the appraisal boards of all six New England states. Instructors are seasoned professionals with demonstrated ability to teach and sufficient practical knowledge.

MBREA played an important role in the formulation of USPAP standards and the development of licensing qualifications. Appraisers who belong to MBREA may earn a professional designation from the association. A professional designation demonstrates commitment to professional growth and the quality of work performed. MBREA designations are “RA” for residential appraisers and “MRA” for general or commercial appraisers.

Present Value LLC is a proud member of the MBREA. They are also certified to appraise outside the New England area.

By: Present Value

Tags: continuing education, massachusetts board of real estate appraisers, MBREA
Posted in Real Estate Appraisal | 3 Comments »

Working with HVCC Regulations

A recent article in Banker & Tradesman suggests that consumer confidence in the real estate market is coming back. Coming out of the 2009 Realtors Conference & Expo in San Diego, the article indicates that in spite of the decline of the market, buyers are still looking for vacation and recreational properties.

Industry experts, however, still appear to be concerned about issues surrounding real estate appraisals and the unintended consequences of the implementation of the Home Valuation Code of Conduct (HVCC). As we have discussed in other blog posts, the perceived problem is that appraisers, working for appraisal management companies, are often working outside areas with which they are familiar and may not have access to information about specific markets. Realtors argue that as a result of valuations that sometimes are too low, sales have been delayed and even cancelled.

This Banker & Tradesman article provides some interesting suggestions by realty agents of ways to work with the HVCC changes, including providing appraisers with detailed property comparison information and background materials to help appraisers achieve the most accurate appraisals.

As always, Present Value LLC is both an appraiser and an appraisal management company, which means that it can play the role of the third party required by the HVCC changes and save you the step of having to seek out a separate appraisal management company.

By: Present Value

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

First-Time Homebuyer Tax Credit Extension

Those who were feeling the pressure to buy a home immediately in order to take advantage of the first-time homebuyer tax credit can relax a bit. On November 6, President Obama signed a bill that, among other things, extended the tax credit available for first-time homebuyers. Originally due to expire at the end of this month, the tax credit now doesn’t expire until next June, provided that the homebuyer signs a binding contract by April 2010 that states a June closing.  

In addition to extending the expiration date of the tax credit, the bill added a provision that allows a $6,500 tax credit to home owners who have lived in their current residence for at least five years and plan to buy a new home. 

There are a few details to keep in mind about the tax credit:

• The credit isn’t really just for first-time homebuyers. Anyone who hasn’t owned a home for at least three years is considered a first-time buyer.
• The credit is only available for the home in which you plan to live. It can’t be claimed for the purchase of a vacation or rental property.
• Although $8,000 is the number we’ve all heard in regard to this bill, the bill actually states that homebuyers are eligible for a tax credit equal to 10% of the price of the purchased home, up to $8,000. If you happen to buy a $70,000 home, you’d only receive a $7,000 tax credit.
• If you sell your home or move out within three years, you’ll be required to pay back the credited amount.

Remember that any home purchase requires a detailed appraisal, and to ensure an accurate estimate of the home value, you should work with an appraiser who is familiar with the housing market in the area where you found your dream home.

By: Present Value

Tags: first time homebuyer tax credit, President Obama signs bill, tax credit extension
Posted in Real Estate Appraisal | 2 Comments »

Ad Valorem Tax

An ad valorem tax is a tax based on the value of real estate or personal property. Ad valorem is Latin for “according to value.”

One example of an ad valorem tax is property tax, which a real estate owner pays on the value of the property being taxed. There are three kinds of property: land, improvements to land, and personal. The taxing authority requires an appraisal of the value of the property, and the tax is assessed according to that value. Types of property tax vary from state to state.

Another example of an ad valorem tax is land value taxation (LVT), which is assessed on the value of land. This tax does not take into account buildings, improvements, or personal property. Thus, LVT is different from other property taxes on real estate (the combination of land, buildings, and improvements to land). All real estate property tax has an element of land value tax because land value is part of overall property value.

Ad valorem taxes (primarily real property tax and sales tax) are a major source of revenue for state and local governments, especially in states without a personal income tax.

By: Present Value

Tags: ad valorem tax, LVT
Posted in Tax issues | 1 Comment »

Auction Value: Fair Market Value

We’re continuing our discussion of the three different types of value a certified appraiser will provide before a company auctions off its assets. Read the other posts on this topic here.

Fair market value (FMV) is the estimated potential value of equipment and machinery if it were sold in an open market. The following assumptions are made when determining FMV:

• Both the buyer and the seller are willing and knowledgeable about the asset, and neither party is being forced into the transaction.
• The market is open and accessible by many buyers and sellers.
• All rights and benefits attributable to the asset are included in the sale.

Additional factors are considered when assessing FMV: the cost or selling price of the item, sales of comparable assets, replacement costs, and expert opinions. FMV can be somewhat subjective because it is based on the circumstances of place and time, and the availability of sales data for comparable machinery or equipment.

This concludes our series of posts on the three types of asset values that a business should know prior to an auction. Understanding the three types of asset value that should be provided by an appraiser can help a business set appropriate price ranges at auction and receive the highest possible profit from auction sales.

By: Present Value

Tags: auction value, certified machinery and equipment appraisal, fair market value, present value
Posted in Appraisal Terms, Equipment Auctions, Machinery & Equipment Appraisal | 3 Comments »

Auction Value: Forced Liquidation

In this post, we’re continuing our discussion of the three different types of value a certified appraiser will provide before a company auctions off its assets. Read the first two posts here and here. Today, we’ll tackle the topic of forced liquidation value.

Forced liquidation value assumes that a seller is being forced to sell his machinery, equipment, and other assets and wouldn’t be doing so if circumstances weren’t dire. Forced liquidation value is also known as auction value and implies a diminished sales value because of buyers taking advantage of a seller compelled to go to auction. The forced liquidation value of a company’s assets will always be lower than the fair market value.

An appraiser settles on an asset’s forced liquidation value by determining the fair market value and then judging the price for which the goods will most likely sell if there is not enough time to collect an adequate number of bids in an auction.

By: Present Value

Tags: auctions, forced liquidation value
Posted in Appraisal Terms, Equipment Auctions | 2 Comments »

Auction Value: Orderly Liquidation

In last week’s blog, we began a discussion about the three different types of value that a certified appraiser will provide prior to a company auctioning off its assets. In this blog, we will address the first type, orderly liquidation value.

A liquidation value is the estimated amount of money a company’s assets could quickly be sold for if the company went out of business. In a normal, growing industry that shows profit, a company’s liquidation value would be much less than the share price. In an unprofitable or shrinking industry, the liquidation value would likely exceed the share price. Though not always the case, if the liquidation value exceeds the share price, the company will go out of business.

The orderly liquidation value is based on the idea that a company can afford to sell off its assets to the highest bidder. It assumes an orderly sale process in which the seller can take a reasonable amount of time to sell each asset in its appropriate season and through channels of sale and distribution that fetch the highest reasonable price.

In the next blogs, we will examine forced liquidation value and fair market value.

By: Present Value

Tags: equipment appraisal, machinery & equipment appraisals, machinery appraisal, Orderly liquidation value, present value
Posted in Equipment Auctions, Machinery & Equipment Appraisal | 1 Comment »