Oftentimes, as we have discussed in numerous post about auctions, when most people talk about auction value, they are talking about pricing for a public auction sale or “forced liquidation value.” This is where misconceptions about auction value can occur. It often assumes an unwilling seller acting under duress; in addition, it implies a diminished sales value because of buyers taking advantage of the unwilling seller.

By using forced liquidation value to mean auction value, it also presupposes inflationary or depreciable conditions that affect sales, such as physical location, difficulty of removal, adaptability or specialization, marketability, physical condition, overall appearance, and total psychological appeal. It also means that the seller must find interested buyers during a marketing period of 90 days or less. Also inherent in this definition is the understanding that all equipment or assets listed be sold on a piecemeal, “as is/where is” basis, with the buyers being responsible for removal at their own risk and expense.

By using this definition for auction value, there is no consideration for additional values that might be obtained due to product line, equipment in place, ongoing operation, or other elements of value that could or might be produced at an auction sale.

Not all auction sales occur under forced sale conditions, and auctions sometimes produce a wide array of price points equal to many value definitions, so it makes sense to always make sure you use a certified equipment appraisal to understand all the definitions of value in an auction setting. Present Value can represent companies throughout the whole auction process.

By: Present Value

Additional Reading:

Know the Value of Your Machinery and Equipment Before an Auction

Case Study: Equipment Appraisal for a Lending Institution

Machinery and Equipment Auctions

There are several theories about why Canadians are reluctant to put their homes on the market right now. One is that Canada’s harsh winter is a terrible time to try to sell a house. Other home owners may be waiting for assurance of an economic recovery before they try to sell, while others may be finishing upgrades prompted by Canada’s home renovation tax credit. The hope is that warmer weather and the seller’s market will prompt home owners to put their homes up for sale in the coming months, which will prevent a price bubble from forming. Hopefully, they’ve learned from the U.S. housing market the importance of a fair and accurate appraisal in keeping home prices under control. 

You can read the full article here.

By: Present Value   

Additional Reading:

Why Get a Real Estate Appraiser

The Education of an Appraiser

Gunther’s problems were immediate and myriad. He didn’t know the first thing about toy construction. He couldn’t speak elvish, so he and his helpers had no way to communicate. Being a Florida native, he hated the cold. And he didn’t like children.

So he offered to sell the whole operation to his younger brother. But what would his asking price be? There was the house to consider, the workshop, the toy-making equipment, the workbenches, the tools, the toys themselves – how could he estimate a value for all of it?

He called on the services of the good girls and boys at Present Value. They were able to do an appraisal on the house (not easy when the nearest comparable property is hundreds of miles away), appraise the equipment, and provide a business valuation so that both Clauses were satisfied with the final sale price.

Gunther returned to the Florida panhandle, where he happily lives out his days. Santa stayed at the North Pole and became the legend he is today. And Present Value wishes you and your family the happiest of holidays!

By: Present Value

The sales comparison approach is based on the principle of substitution, meaning a prospective buyer would not pay more for a property than he or she would pay to purchase a comparable property. The approach stems from the acknowledgement that a buyer will compare the prices of various suitable properties and purchase the one with the lowest cost. Within the sales comparison approach, a state-licensed real estate appraiser will gauge and study the actions of buyers, sellers, and investors in the marketplace.

The appraiser will collect information on recent sales of properties similar to the property being valued. These compilations of data are called “comparables.” Sources of comparable data include real estate publications, public records, buyers, sellers, real estate agents, real estate appraisers, and others. Details of each comparable sale are in the appraisal report. Since comparable sales are not identical to the subject property, adjustments are sometimes made for date of sale, location, style, number of bathrooms, square feet, etc. The idea is to simulate the price that would have been paid if each comparable sale were identical to the subject property. If the adjustment to the comparable is higher or lower than the subject property’s value, an adjustment is made higher or lower, as appropriate, to the subject property’s value. From the analysis of the adjusted prices of the comparables, the real estate appraiser determines the subject property’s value.

By: Present Value

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

Most mortgage lenders require that the appraiser employ the market-data approach in determining value, meaning the appraiser will find similar properties in the area that sold recently and use that information to determine an approximate value. This method can be time-consuming, so some lenders use a less formal method that speeds appraisals, waiving the need to find comparable homes in the area and relying instead on the experience of their appraisers.

Lenders generally combine the market-data approach with the cost approach, where the property’s value is determined by what it would cost to acquire the land and build the house. Older homes are usually appraised using the market-data approach, and newer homes are usually appraised with the cost approach.

Of course, once an appraiser has made a determination of a property’s value, the lender still has a number of criteria to consider with regard to the potential purchaser – factors like credit history, available down payment, references, and LTV (loan to value, the amount of the loan as a percentage of the value of the property). But as long as the property has a solid appraisal from a certified appraiser and a good candidate to buy, the lender’s job is made that much easier.

By: Present Value

Personal property would include things like furniture, window treatments, and some fixtures. Land improvements would include a sidewalk or a fence. Because these items are useful for a relatively short period of time, they can be depreciated more quickly than buildings or land. The buildings category includes each of the building’s separate components, like the roof or the walls, each of which can be depreciated at a different rate. The value of the building that is not accounted for in personal property, land improvements, or buildings is allocated to the land category.

An important component of conducting a cost segregation study is hiring an appraiser who can conduct a site inspection and substantiate the value of any equipment or machinery on the property that would fall under the personal property or buildings categories of the cost segregation.

By: Present Value

Estate planning sets up the transfer of an individual’s property to designated beneficiaries to minimize or possibly eliminate the taxes levied by the U.S. Unified Gift and Estate Tax Program. Without estate planning, the tax liability of the business can be so oppressive that the only choice the inheritor has is to sell off all of the company’s assets and either soldier on without them, or shutter the business and walk away.

A periodic valuation of the business can help the owner and family members better understand the nature of the estate tax concerns. The valuation can also provide a guide the business owner can use to set up ownership transfers, and can provide a basis for the valuation of gifts. More importantly, it can guard against future conflicts with the IRS.

Business succession planning is just as important as estate planning to the future of a business. Making business succession plans (determining which family member or combination of family members will carry on the business) requires careful thought that will often cause the business owner to reconsider his original position on who will carry on the operations once he is gone or no longer able to maintain the leadership role.

By: Present Value

Back in March of 2009, a real estate appraiser named Jason received a normal appraisal request. A two-family house, owner unoccupied, get to it when you have a chance. Simple. Jason arranged to pay a visit on a Thursday.

A certified appraiser for a number of years, Jason saw nothing out of the ordinary when he pulled up to the saltbox-style house. It was located on a side street in Danvers, Massachusetts, which history buffs will recall was once a part of the original Salem Village. But nothing unusual about the house. Just a house.

There was a lockbox on the front door. No one had lived there for a while, so this was standard practice. He keyed the code for the lockbox, got the key, and let himself in.

The first thing that struck him was that every single light in the house was on. Sometimes owner unoccupied houses are kept on timers so that it looks like someone is home at night, but Jason was there in the middle of the day. It didn’t make sense.

He stepped in and took out his digital camera to take some photos of the property. The first floor was laid out like a very wide hallway, one room leading straight into the next. At the end, opposite from where he entered, was a doorway that led to an enclosed porch. The stairs to the second floor were just outside the doorway.

There were a few pieces of furniture left behind by the most recent owners, and one of them was a recliner to the far left of the doorway. Jason paid it little notice.

After he finished with the first floor, he passed through the doorway and out onto the porch. He climbed the stairs to the second floor. The layout was identical to the first floor. Jason made his way through, snapping photos and making notes in his notebook.

As he passed the archway between the dining room and the living room, something suddenly pushed him hard from behind, right between his shoulder blades. He whipped around fast and caught movement out of the corner of his eye. His immediate thought was that a cat had been perched somewhere, pounced on him, and then took off. But there was nowhere for a cat to perch, nowhere for a cat to hide. He couldn’t find anything that could have pushed him. He was all alone in the house.

Jason sped through the rest of the second floor. He was supposed to check the attic, but he thought the attic could wait. He was ready to go.

He went back down the stairs in the enclosed porch, headed for the doorway that led back to the first floor. At the foot of the stairs he froze. The recliner he’d seen earlier was now blocking the doorway.

After taking a minute or so to process this, he shoved the recliner aside, sprinted through the house, ran through the front door, and slammed it behind him.

Real estate appraisers can see some strange things, but sometimes they see some really strange things. Buyer beware.

By: Present Value LLC

The trend seems to be that a buyer and seller will agree upon a price, but the appraisal value comes back lower than the agreed-upon price, threatening a successful sale. Real estate appraising is less of an exact science in the current economic climate than it used to be and much is left to interpretation. This is why it is more important than ever to work with an experienced appraisal company that you trust.

Click here to read the full article.    

By: Present Value