There are a number of appraisal values that may be selected
for use by a client. Most folks are
familiar with two; Fair Market Value and Forced Liquidation Value, which is
better known as Auction Value.
In actuality, there are a whole host of differing value
concepts used by professional appraisers including; Reproduction Cost New;
Replacement Cost New; Fair Market Value; Fair Market Value in Continued Use;
Fair Market Value – Installed; Fair Market Value – Removal; Liquidation Value –
In Place; Orderly Liquidation Value; Forced Liquidation Value; Salvage Value;
Scrap Value; Insurance Replacement Cost and Insurance Value Depreciated.
The use of any of these values depends entirely upon the
client’s purpose and intended use of the appraisal. In a bank foreclosure situation, one of the
liquidation values is best, depending upon just how the bank intends to dispose
of the assets. Liquidation Value In
Place represents the amount obtained from the sale of a failed facility when
sold intact. However, if an intact sale
is not possible, then Forced Liquidation Sale or Auction Value is likely
appropriate.
The responsibility of the appraiser is to make certain that
the purpose and intended use of any appraisal is in line with the value concept
being considered. Far too many times
clients request values that are inappropriate to the actual intended use of the
appraisal.
For example, I was engaged to perform an appraisal of
business assets for the purpose of property settlement resulting from a
divorce. The engaging attorney indicated
a desire to have the assets valued at Forced Liquidation Value. His reasoning was based upon the actions of
opposing counsel who had already engaged another appraiser to value the same
assets using the same value concept.
Forced Liquidation Value is defined as the amount that could
typically result from a properly advertised and conducted public sale with the
seller being compelled to sell, with a sense of immediacy on an as is-where is
basis. In this instance, the assets were
actually not for sale and the business was continuing to function at a profit.
The opposing counsel’s intent in this instance was to have the lowest value
result possible in order to reduce his client’s potential liability.
In the end, I convinced engaging counsel (and eventually the
judge) that Fair Market Value which is defined as the end result between a
willing buyer and seller in a arms length transaction, was the proper value
concept to employ. The judge eventually
awarded my client a higher property settlement amount than was originally
proposed.
Professional
appraisers, especially those designated by a national appraisal organization,
are thoroughly trained in value concepts and the purpose and intended use of
each. Whenever an appraisal is being
considered, it is always best to consult with an experienced appraiser in order
to make certain you are getting exactly what you pay for.
