Introduction to Appraisals Module - AN ASSOCIATION OF PROFESSIONALS PUTTING CAPITAL TO WORK - Secured Finance Network
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AN ASSOCIATION
OF PROFESSIONALS
PUTTING CAPITAL
SFNet On Demand Education Series TO WORK
Introduction to Appraisals Module
2
Upon completion of this Module, you will have an
understanding of the following:
✓ Basic valuation terms & definitions
✓ Professional associations and the source of appraisal
standards
✓ Common value concepts
✓ Two types of appraisal reports
✓ Value tiers
© 2021 Secured Finance Network SFNet.com | 2ABOUT APPRAISALS
© 2021 Secured Finance Network SFNet.com | 34
Basic ValuationBasic Valuation
Definitions Definitions
APPRAISER: “One who is expected to perform
valuation services competently and in a manner that is
independent, impartial, and objective.” – USPAP
APPRAISAL: “The act or process of developing an
opinion of value; an opinion of value.” – USPAP
VALUE: “The monetary relationship between properties
and those who buy, sell, or use those properties.” – USPAP
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Selected Professional Appraisal Associations
ASSOCIATION DESIGNATION(S)
ASA*: American Society of Appraisers (ASA) Accredited Senior Appraiser
(Real & Personal Property) (AM) Accredited Appraiser
(IFA) Independent Fee Appraiser (RE)
AI: Appraisal Institute (MAI), (SRI), (AI-GRS), (AA-RRS)
(Real Property)
AMEA: Assn of Machinery & Equipment Appraisers (AEA) Accredited Equipment Appraiser
(Personal Property)
EAANA: Equipment Appraisers Association of N.A. (CSA) Certified Senior Appraiser
(Personal Property)
NACVA: National Assn of Certified Valuator & Analysts
(CVA) Certified Valuation Analyst
(Business Valuation & Review)
RICS**: Royal Institution of Chartered Surveyors (MRICS) Professional Member
(Real & Personal Property)
The Appraisal Foundation (AF): Authorized by US Congress as the Source of
Appraisal Standards & Qualifications – umbrella organization for two independent boards: the
Appraiser Qualifications Board (AQB) and the Appraisal Standards Board (ASB).
* AF Sponsor **Affiliate AF Sponsor
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Appraisal Oversight and Standards
UNIFORM STANDARDS OF PROFESSIONAL APPRAISAL
PRACTICE (USPAP) :
➢ USPAP was developed by The Appraisal Standards Board (ASB) of The
Appraisal Foundation (AF)
➢ The purpose of USPAP is to promote and maintain a high level of public
trust in appraisal practice
➢ USPAP is the generally accepted and recognized standards of appraisal
practice in the United States
➢ Only the content of the current or applicable edition of USPAP is
enforceable by State and federal regulatory authorities
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Important Organizations
AMERICAN SOCIETY OF APPRAISERS (ASA):
A multi-disciplinary professional appraisal society
that tests and accredits real property, machinery &
equipment, and business valuation appraisers,
among others.
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Important Organizations
THE APPRAISAL INSTITUTE (AI):
An international association of professional real
estate appraisers:
tests and accredits residential, commercial, and
industrial real property appraisers.
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Important Organizations
NATIONAL ASSOCIATION OF CERTIFIED
VALUATORS AND ANALYSTS (NACVA):
A multi-disciplinary professional appraisal society that
tests and accredits business valuation appraisers and
appraisal reviewers, among others.
© 2021 Secured Finance Network SFNet.com | 910 QUIZ 1 © 2021 Secured Finance Network SFNet.com | 10
11
Quiz
For (1) & (2): Identify the organization that is the best source
of each of these:
1. Published standards for preparing and reporting appraisals:
a) ASA b) CVA
c) FASB d) USPAP
2. Names of accredited appraisers in various specialties and/or regions:
a) ASA b) ISV
c) FASB d) USPAP
3. According to USPAP, value can be expressed in bales of hay or work-in-trade just as well as
dollars, renminbi, or pesos.
a) True b) False
© 2021 Secured Finance Network SFNet.com | 1112
Quiz Answers: Basic Definitions
For (1) & (2): Identify the organization that is the best source of each of
these:
1. Published standards for preparing and reporting appraisals:
d) USPAP – See Slide 6 - “USPAP is the generally accepted and recognized
standards of appraisal practice in the United States”
2. Names of accredited appraisers in various specialties and/or regions:
a) ASA – See Slide 7 – the ASA “tests and accredits real property, machinery &
equipment, and business valuation appraisers”
3. According to USPAP, value can be expressed in bales of hay or work-in-trade just as
well as dollars, renminbi, or pesos.
b) False – See Slide 4 – According to USPAP, Value is “a monetary relationship….”
© 2021 Secured Finance Network SFNet.com | 1213
Definitions of Value : Source ASA
FAIR MARKET VALUE (RETAIL):
An opinion expressed in terms of money,
at which the property would change hands
between a willing buyer and a willing seller,
neither being under any compulsion
to buy or to sell and both having
reasonable knowledge of relevant facts,
as of a specific date.
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Definitions of Value : Source ASA
FAIR MARKET VALUE-INSTALLED, IN-PLACE (RETAIL
IN PLACE):
An opinion, at which the property would change hands between a
willing buyer and a willing seller, neither being under any compulsion
to buy or to sell and both having reasonable knowledge of relevant
facts, considering market conditions for the asset being valued,
independent of earnings generated by the business in which the
property is or will be installed, as of a specific date.
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Definitions of Value : Source ASA
FAIR MARKET VALUE-INSTALLED, IN-CONTINUED USE
WITH AN EARNINGS ANALYSIS (RETAIL IN PLACE AND
IN USE):
An opinion, expressed in terms of money, at which the property
would change hands between a willing buyer and a willing seller,
neither being under any compulsion to buy or to sell
and both having reasonable knowledge of relevant facts,
as of a specific date and supported by the earning of the business.
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Definitions of Value: Source ASA
FAIR MARKET VALUE-INSTALLED, IN-CONTINUED USE
WITH ASSUMED EARNINGS (RETAIL IN PLACE AND IN
USE):
An opinion, expressed in terms of money, at which the property
would change hands between a willing buyer and a willing seller,
neither being under any compulsion to buy or to sell
and both having reasonable knowledge of relevant facts,
as of a specific date and assuming that the business earnings
support the value reported, without verification.
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Value Components to FMVIP & FMVICU:
‘Assemblage Costs’ (Adders)
➢ The addition of assemblage costs is one of the major distinguishing factors of the
‘in Place, in Continued Use / Installed’ premise of value in comparison to all others.
➢ Assemblage costs account for the value contribution of the costs required to get the
base units installed in the plant and ready to operate. Following is a summation of
all direct and indirect costs in addition to direct material costs.
➢ Typical assemblage costs include:
➢ Sales tax (if applicable)
➢ Costs of dismantling, moving, and settling in place
➢ Freight costs necessary to get the assets to the plant site
➢ Rebuilding or retrofitting costs
➢ Installation costs, including connections, foundations, and millwright work
➢ Connection costs, including piping, wiring and instrumentation
➢ Design, engineering, or evaluation costs (if necessary)
➢ Start-up and testing costs
➢ And any other direct or indirect costs that are normally required to place the asset in service
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Definitions of Value: Source ASA
ORDERLY LIQUIDATION VALUE:
An opinion of the gross amount expressed
in terms of money, that typically could be realized
from a liquidation sale, given a reasonable period
of time to find a purchaser (or purchasers)
with the seller being compelled to sell
on an as-is, where-is basis, as of a specific date.
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Definitions of Value: Source ASA
LIQUIDATION VALUE IN-PLACE:
An opinion of the gross amount expressed in terms of money,
that typically could be realized from a
properly advertised transaction,
with the seller being compelled to sell,
as of a specific date,
for a failed, non-operating facility,
assuming the entire facility is sold intact.
© 2021 Secured Finance Network SFNet.com | 1920
Definitions of Value: Source ASA
FORCED LIQUIDATION VALUE
(UNDER THE HAMMER):
An opinion of the gross amount expressed in terms of money,
that typically could be realized from a
properly advertised and conducted public auction,
with the seller being compelled to sell with a sense of
immediacy on an as-is, where-is basis,
as of a specific date.
© 2021 Secured Finance Network SFNet.com | 2021
Definitions of Value: Source ASA
SALVAGE VALUE (PART OUT):
An opinion of the amount,
expressed in terms of money,
that may be expected for the whole property
or a component of the whole property
that is retired from service
for possible use elsewhere,
as of a specific date.
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Definitions of Value: Source ASA
SCRAP VALUE
(VALUE PER POUND, ETC.):
An opinion of the amount, expressed in terms of money,
that could be realized for the property
if it were sold for its material content,
not for a productive use, as of a specific date.
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Definitions of Value: Source ASA
FAIR VALUE:
The price that would be received
to sell an asset or paid to transfer a liability
in an orderly transaction between market participants
at the measurement date,
… assumes its highest and best use by
market participants.
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PREMISE OF VALUE
LVIP (liquidation value in
FMV (in exchange)
place)
FMVIP (in place) FLV (in exchange)
FMVICU w/ justification Sal. V / Salvage (part out)
FMVICU w/ assumed
SV (scrap)
earnings
OLV (in exchange) FV (FASB accounting term)
© 2021 Secured Finance Network SFNet.com | 2425 QUIZ 2 © 2021 Secured Finance Network SFNet.com | 25
26
QUIZ: Premise of Value, pt 1
Choose the appropriate value premise representing an opinion of the net or
gross proceeds expected from each type of sale:
1. In a bankruptcy proceeding, the court has ordered that certain equipment must be sold with a
sense of urgency in 30 – 60 days.
a) FMV-installed b) FMV
c) Salvage d) FLV
2. A debtor filed for bankruptcy and the collateral (machine tools) must be sold in 90 – 150 days.
a) FMV b) OLV
c) OLV-installed d) Scrap
3. An integrated process facility closed and is being sold in bankruptcy in place, as a complete,
functional unit, ‘as is, where is’ with a remarketing time of 180 - 360 days.
a) FMV-installed b) OLV
c) OLV-installed d) FLV
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QUIZ ANSWERS: Premise of Value, pt 1
Choose the appropriate value premise representing an opinion of the net or gross proceeds
expected from each type of sale:
1. In a bankruptcy proceeding, the court has ordered that certain equipment must be sold with a sense of
urgency in 30 – 60 days.
d) FLV – See Slide 20 – “seller being compelled to sell with a sense of immediacy”
2. A debtor filed for bankruptcy and the collateral (machine tools) must be sold in 90 – 150 days.
b) OLV – See Slide 18 – “given a reasonable period of time to find a purchaser with the seller being
compelled to sell”
3. An integrated process facility closed and is being sold in bankruptcy in place, as a complete, functional
unit, ‘as is, where is’ with a remarketing time of 180 - 360 days.
c) OLV-installed – See Slide 19 – “being compelled to sell, as of a specific date, for a failed, non-
operating facility, assuming the entire facility is sold intact”
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QUIZ: Premise of Value, pt. 2
Choose the appropriate premise of value representing an opinion of the
net or gross proceeds expected from each type of sale:
• 4. Various pipes, wiring, and ductwork are to be removed from a building and then sold by weight.
•
a) OLV b) FLV
c) Salvage d) Scrap
• BONUS QUESTION: What is USPAP?
•
a) It only applies to real estate appraisers
b) It is a professional appraisal society that offers certified appraisal reports by its members
c) It is the generally accepted and recognized standard of appraisal practice, developed by The
Appraisal Standards Board of The Appraisal Foundation with U.S. Congressional
authorization
d) It is a regulatory agency with authority over all appraisal practice in the U.S.
© 2021 Secured Finance Network SFNet.com | 2829
QUIZ ANSWERS: Premise of Value, pt. 2
Choose the appropriate premise of value representing an opinion of the net or gross
proceeds expected from each type of sale:
• 4. Various pipes, wiring, and ductwork are to be removed from a building and then sold by
weight.
•
d) Scrap – See Slide 22 – “if it were sold for its material content, not for a productive use”
• BONUS QUESTION: What is USPAP?
•
c) It is the generally accepted and recognized standard of appraisal practice, developed
by The Appraisal Standards Board of The Appraisal Foundation with U.S. Congressional
authorization
See Slide 6
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TWO REPORT TYPES: ‘Appraisal Report’ and
‘Restricted Appraisal Report ’
The essential difference between these two options is in
the content and level of information provided. The
Appraisal Report is more self-contained and provides
thorough explanations, while the Restricted Appraisal
Report is truncated and written for only one client and
one reader.
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‘Appraisal Report’ (USPAP):
✓ Must be provided when the intended users include
parties other than the client
✓ Must summarize the information analyzed, methods and
techniques employed, and the reasoning that supports the
analyses, opinions and conclusions
✓ The appraiser must provide sufficient information to
enable the client and intended users to understand the
rationale for the opinion and conclusions
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‘Restricted Appraisal Report’ (USPAP):
✓May be provided when the client is the only intended user
✓ Must state the appraisal methods and techniques
employed, state the value opinion(s) and conclusion(s)
reached, and reference the workfile
✓Rationale for how the appraiser arrived at the opinion and
conclusions set forth in the report may not be properly
under-stood without additional information in the appraiser’s
workfile
© 2021 Secured Finance Network SFNet.com | 32You can also read
