Appraisals - Beyond Real Estate

Whenever I am asked what I do for a living, my response is; “I’m a machinery and equipment appraiser” which frequently generates a look of amazement followed by the comment; “ I didn’t know anyone did that!” Most people are familiar with real estate appraisers but are not aware that there are a number of other appraisers out there who possess professional expertise in a variety of areas.

Currently, there are five basic appraisal disciplines; real property, personal property, machinery and equipment, business valuation and gems & jewelry. Each discipline maintains its own qualifications and standards for membership. Within each discipline there are likely a listing of specialties. For example, machinery and equipment has several specialties including; aircraft, computers & high tech property, cost surveys, machinery and equipment, marine survey, mines & quarries, oil & gas and public utilities. 

Most appraisers belong to a national organization that grants accreditations based upon one’s level of education, experience, background including financial and personal integrity and the successful completion of several appraisal courses and exams. Only after all these requirements are met is the appraiser granted a specific designation in his or her specialty. Lastly, most appraisal organizations mandate their members reaccredit every five years via continuing education in order to assure that everyone is current with the most recent techniques and developments.

There are several national appraisal organizations including; the American Society of Appraisers, The Appraisal Institute, the American Society of Farm Mangers and Rural Appraisers, the International Society of Appraisers and the National Association of Independent Fee Appraisers, to name just a few. For the record, I am a member of the American Society of Appraisers, which is the oldest, and only major appraisal organization representing all the appraisal disciplines.

There are any number of reasons why an appraisal might be necessary, they include; financing/collateral; business mergers, acquisitions & liquidations; charitable contributions; eminent domain, probate; property settlement (divorce), bankruptcy; estate planning; insurance including disaster planning and tangible personal property tax appeal.

All of these situations require differing approaches to value since it is possible that an appraisal of the same property may result in alternate results depending upon the purpose of the appraisal. For instance, an appraisal of an RV for charitable contribution purposes will be vastly different from an appraisal of the same RV involved in a bankruptcy. 

What is an appraisal anyway? The industry definition is; an unbiased opinion of value. It is important to understand the reasoning behind this definition. The appraiser must be unbiased so as not to show any favor toward the property or the parties involved. In addition, the engagement can not be contingent upon any predetermined result and the appraiser can not possess any past, current or intended interest in the property being appraised. In short, all parties that rely upon an appraisal must be assured that the appraiser is totally neutral.

The word “opinion” is frequently misunderstood within the context of an appraisal. An appraisal is not a guarantee but an indicator of the “most likely” result of a sale that closely resembles the purpose of the appraisal. For example, the sale of a business may result in an appraisal at Fair Market Value while a bankruptcy of the same business may conclude in Forced Liquidation Value. In addition, the appraiser, without interference, must be able to determine the specific approach to value being employed. Since this decision is the sole province of the appraiser, the result is a researched personal opinion.

There is a large number of value concepts which appraisers may employ with two of the most commonly used being; Fair Market Value and Forced Liquidation Value. Fair Market Value is defined as the result of an arms length transaction between a willing buyer and seller while Forced Liquidation Value is the result of a properly advertised and conducted public sale, with the seller compelled to sell on a as is-where-is basis.

There are several factors taken into consideration when appraising property. For example, in order to properly value a motor vehicle, the appraiser must consider the manufacturer, model, year produced, usage, overall condition, attachments and accessories, market demand, obsolescence and current market conditions. This is the purpose behind the physical inspection that is usually required prior to issuing any opinion of value.

As a result of the Savings & Loan crisis back in the late 1980s, the US Congress formed the Appraisal Foundation in order to establish appraiser qualifications and standards. The end result is the “Uniform Standards of Professional Appraisal Practice” or “USPAP.” These standards have been adopted by the federal government and all 50 states. All federal and most state agencies require that appraisers comply with USPAP. 

Whenever engaging an appraiser, it is prudent to confirm both his designation and membership in good standing with a professional appraisal organization followed by a determination of the appraiser’s expertise with the property being appraised. Your project and your organization deserve nothing less!