Posts Tagged ‘appraisal’
Financial Advisors Urging Business Owners to Know the Value of Their Businesses
Because of the economic downturn, many business owners are reluctant to think about the value of their businesses. Fearful that their businesses have lost value, it’s the last thing they want to hear about. An article in Financial Advisor suggests that many business advisors are urging their clients who own businesses to have their businesses valued in order to gauge their business health and for planning purposes, including adjusting estate and succession plans.
Business owners have different reactions when they find out that their businesses are worth less than they once were. Some decide to delay selling their business, and others use it as an opportunity to make necessary changes. One business owner who was interviewed said that he was glad to know the value of his business because it enabled him to determine steps he needed to take to improve the business and prepare to potentially sell it within 10 years.
According to experts, some businesses are worth 30% less than a few years ago, and they argue that understanding the value of a business can help owners determine whether or not they should sell their business or bequeath it to the next generation. On a positive note, a lower valuation can benefit owners in terms of taxes right now. The article highlights the fact that if owners are planning to pass on the business to their children, now might be the time to do it, since estate taxes are “expected to rise next year and new restrictions on use of trusts could also be coming soon.”
By: Present Value
Additional Reading:
How Does the Economy Affect Business Value?
Four Methods to Determine a Property Value
Real estate appraisals are, of course, the best method of determining the value of a property. But did you know there are a few other methods that brokers and lenders will sometimes use to determine a value? Here are four of the most popular methods used:
- Broker Price Opinion (BPO). BPOs are used by lenders in certain situations – for example, pending foreclosure – where they don’t want to order a full appraisal, which costs more and takes more time. It’s important to note, though, that BPOs are not appraisals. They are merely used to get a property’s value.
- Comparative Market Analysis (CMA). When a realtor wants to calculate a property’s worth, he or she will use a computer-generated value known as a Comparative Market Analysis. Some agents use recently sold property with similar features or similarly listed properties to determine a number. CMAs are free from real estate agents, but because agents are looking for business, they will sometime skew the numbers to the buyer’s liking.
- Automated Valuation Model (AVM). Lenders use this automated computer program to analyze data regarding a property. At the end of the data analysis, the AVM creates a value range and places the property at a specific point within that range. AVMs tend to be of little practical use, however, because they don’t take into account renovations or other property alterations that could increase or decrease the value of a home.
- Real Estate Appraisal. Appraisals are done by licensed professionals to determine the market value of a home. Because they are performed by experts with real-world experience and years of training, they are the best choice for determining an accurate property value.
By: Present Value
Additional reading:
Estate Planning: What Legacy Will You Leave Your Family?
Many people think that because they don’t have a whole lot of money or valuables estate planning is something that isn’t necessary for them. Unfortunately, however, families sometimes become divided over estates that are considered not worth much – even when there is a will. While the word estate may confuse people, estate planning is really just a process of organizing a person’s affairs before he/she passes away, which can include drawing up a will and/or setting up trusts.
We recently came across an example of how even disputes over a small estate can cause a huge rift in a family after the death of a loved one. In this case, the father passed away, leaving his assets – including a house full of furniture and belongings, a couple of old vehicles, some equipment, and an old tractor, none of which had been appraised – to his three children. One sibling wanted the house and the other siblings did not want any of the physical assets. The executor was slow to file the will; none of the assets had been appraised and they were guessing at their values.
When it came time to talk about dividing the assets, tensions were high and tempers began to flare, potentially causing a long-term or permanent rift in a previously close-knit family. A lack of understanding about asset values and specifics about how the estate should be divided in the will is causing a whole lot of problems for the family.
Unfortunately, when it comes to property, asset, and financial disputes, people sometimes can get ugly, take sides, and get paranoid and possessive about what they believe should be rightfully theirs. When thinking about what you may be leaving your family, it’s always best to work with professionals, including estate planners, lawyers, and appraisers, who understand the ins and outs of the process. It’s best to know the value of what you are passing on in order to avoid causing additional strain for your family at an already difficult time.
By: Present Value
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Glimmers of Hope in Small-Business Lending
After more than two years of stagnation, it appears that small-business lending is on the rise. The Thomson Reuters/PayNet Small Business Lending Index, which measures the overall volume of financing, increased 4% in March 2010, the first year-on-year gain since October 2007.
A recent Time Magazine article reported that many small and community banks are now seeing more demand for loans, which is a positive sign for the economy. According to the article, economists have expressed concern that despite the 3.2% first quarter economic activity growth, there was a lack of business lending activity. Business lending demonstrates business growth, they argue. Businesses in growth mode need financing to purchase equipment and hire staff, and without that there can’t be sustained economic recovery.
As we have discussed in previous posts, banks are lending money, but they are being more cautious about their investments. This means they are conducting more careful due diligence, which includes their own certified equipment appraisals and business valuations to ensure that they will recoup their losses should a loan default. Having a defensible, impartial appraisal in hand can help increase the chances of getting much-needed money for a small business.
By: Present Value
Additional Reading
5 Cs of Lending (How Appraisal Fits in Even Though It Doesn’t Start with C)
The Perils of Appraising
In previous blogs, including “What Exactly Are You Doing, Appraiser?” and “Uniform Residential Appraisal Report,” we’ve discussed what’s involved in a real estate appraisal and things that an appraiser looks for during an appraisal. But despite the extensive training and testing appraisers go through, there are things that only experience can tell them to look for when they enter a home for an appraisal inspection.
Jason, an appraiser, was inspecting an attic when he stepped on an unsupported section of the floor and fell through the bedroom ceiling below, thankfully landing on the bed. Mike, another appraiser, was chased away from a property he was inspecting by an angry peacock. Countless others have been attacked by dogs of every size and breed, horses, goats, alpacas, and sometimes even by startled property owners themselves who forgot about the appraisal.
The weather is another hazard. Tom was appraising the exterior of a home that had huge snowdrifts in the back yard. As he was taking photos from different angles, he happened upon a hole that was to someday become the family swimming pool and ended up buried up to his neck in the snowbank. And Derek watched the roof of a home he was appraising tear right off and blow away in gale-force winds.
Though some hazards can’t be predicted, if you’re having an appraisal done, go through some preparation beforehand to make it as safe as possible for the appraiser. Lock up excitable pets. Warn the appraiser about loose boards or holes. And be sure to leash your peacock.
By: Present Value
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Thinking about Estate Planning
Recently, in our post, “… And Then Get Back to Living,” we wrote about the importance of succession planning for every business. Last week, in Inc. magazine, there was a great article, “How to Create an Estate Plan,” which provides a step-by-step guide on the most effective ways to start thinking about planning for the future of a company. It emphasizes that this is something that all business owners need to be thinking about because huge legal issues can arise without a plan for how to pass on all the necessary information about the inner workings of a business should something happen to the business owner.
Some of the important takeaways from the article are:
- Keep an open dialogue with those who will be affected by the plan, such as family members and business partners.
- This is a process that lasts as long as the life of a company and it needs to be continuously refined and updated.
- Find people you trust to work with you on planning, including estate planners, attorneys, accountants, insurance providers, and of course business appraisers.
It’s something to think about because no business owner wants their hard work, blood, sweat, and tears to be all for naught. You can take steps now to ensure the future of your company.
By: Present Value
Other posts you might find interesting:
Present Value: More than an Appraisal Firm
Following up on our press release that went out on Tuesday, December 8, 2009, we’d like to focus a little bit more on some of the characteristics that make Present Value a unique full-service appraisal firm.
While lenders and business owners have many choices when it comes to finding an appraisal company, at Present Value, we pride ourselves on being more than just a company that provides appraisals: we act as a trusted resource for lenders and business owners. We can act as consultants to help guide our clients as they make crucial business decisions, whether it be a lender, looking to conduct pre-loan due diligence or auction assets from a loan default, or a business owner, looking to obtain financing or make an acquisition.
In addition to providing appraisal services, Present Value has the expertise and experience to orchestrate other aspects of these deals. The strength of our services comes from the partnerships that we have developed all across the country. We have the capabilities to bring the right people to the table for whatever our clients’ needs may be, such as auctioneer services or brokerage services. We aim to be problem-solvers for each and every one of our clients, helping them make well-informed business decisions.
Present Value prides itself on its turnkey service offerings, and Present Value is happy to act as a resource for its clients as they cope with past mistakes and look toward improving their processes. Our network of professionals will always deliver the highest quality products, backed by a team of experts in their individual market segments.
By: Present Value
NAPA
The National Association of Professional Appraisers (NAPA) is an organization of appraisal experts who provide economic valuations of real, personal, and intangible property. NAPA members obtain certifications and advanced educational programs in the field of valuation. Present Value LLC is a proud affiliate of NAPA.
NAPA follows the Uniform Standards of Professional Appraisal Practice (USPAP). In addition to USPAP, NAPA requires professional members to prepare appraisal reports in a uniform manner, each containing certain required elements:
- A clear statement of the purpose and scope of the assignment
- A clear definition of the appropriate value
- A description of the methods and techniques used to estimate the value
- A clear description of the property and rights being appraised
- A certification statement that includes the unbiased position of the appraiser
- Supporting evidence (sources and research consulted, comparable sales, or other reasonable evidence)
- A statement of qualifications of the appraiser that specifically states why the appraiser is qualified to perform a particular appraisal assignment
Additionally, there are 10 NAPA membership Rules of Ethics.
- Members agree to perform their duties as appraisers ethically.
- Members agree not to set fees on a percentage basis or that are contingent on arriving at a particular value.
- Members agree not to act as advocates, but as objective estimators of value.
- Members agree not to appraise a property in which the appraiser has a present or future interest without fully disclosing that fact.
- Members agree not to advertise or solicit appraisal work through inaccurate, misleading, false, or deceptive claims.
- Members agree not to misuse their professional status with NAPA.
- Members agree to respond to an inquiry or complaint notice from the NAPA peer review committee.
- Members agree to disclose who performed the appraisal and to have each participant who contributed significantly to the assignment sign a certification statement.
- Members agree that the appraiser is required to possess both the knowledge and experience to perform an appraisal task competently or obtain appropriate assistance.
- Members agree that an appraisal assignment is a confidential matter and agree not to disclose the nature of the assignment except to the client, a court of law, or NAPA peer review committee.
By: Present Value
Things That Appraise in the Night
This story is completely true. It was related to me by the man who lived it, and was first hinted at in the blog “What Exactly Are You Doing, Appraiser?”
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.
Why an Appraisal?
Business owners, lawyers, bankers, bank examiners, and CPAs all ask the same question: “What’s it really worth?”
Figuring out the market value of one’s machinery and equipment requires a professional with specialized skills and the expertise and certification to determine true fair market value, liquidation value, salvage value, or replacement cost. It makes sound financial sense to obtain a credible Certified Appraisal Report that holds up under scrutiny from financial institutions, government agencies, buyers, sellers, shareholders, and partners.
At Present Value LLC, we typically quote our fee based on the amount of capital items (items that had an original cost of $2,000 or more) that will be appraised. These items are typically the ones with the greatest value. Items of less-than-original value are considered support items (shop, electronics, and furniture) and are included in the appraisal in groups at no additional cost to the client.
Example:
XYZ Company provides Present Value with an asset list. After reviewing the list, Present Value determines there are 200 total items with 30 capital items. One hundred seventy of these items are considered support items and will be placed in different groups and given value at no additional cost. The remaining 30 capital items will be appraised individually as line items, i.e., 30 capital items x $90 per capital item = $2,700. The total cost of appraisal is $2,700. When you take into account the expertise behind the creation of a report like this, and the credibility it brings to XYZ Company, that $2,700 is a small price to pay.
For more information or to receive a quote on your next Certified Machinery & Equipment Appraisal, please contact Present Value at 866-466-8555 or visit us at www.presentvaluellc.com
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