So what is an appraisal? The best way to define appraisal would be the act of estimating the value of a specific object(s). Often times Blackbird is retained by a bank or business owner to estimate value for various reasons; a new loan, loan restructuring, possible liquidation, business sale, curiosity… Whatever the reason may be, one of our appraisers will come to the location that needs to be appraised and estimate value. The three basic approaches to value are the cost approach (estimating current cost to reproduce or replace – less depreciation), sales comparison approach (appraiser derives a value indication by comparing the assets being appraised to similar assets that have been sold recently), and income capitalization approach (value is derived by an indication for income-producing assets by converting anticipated benefits into value). Using a combination of these three approaches we are able to estimate the value of the subject assets.
Now that we have an approach, what value are we after? All values are not created equal! There are many approaches to value: Forced Liquidation, Orderly Liquidation, Fair Market, Fair Market in Place, Insurance, Replacement, Reproduction, Uninspected Opinion, Salvage Value, Scrap Value… Just to name a few, and each has a very specific definition and use (different industries can use very specialized definitions of value that are specific to the asset, industry or situation).
The most common definitions we are asked to provide in our reports are forced liquidation and orderly liquidation. Loosely defined, Forced Liquidation Value is based on a sale that takes place under duress; therefore everything is sold quickly (typically in 90 days or less) to the highest bidder, and is also referred to as Auction Value. Orderly Liquidation Value allows for a much longer sales cycle (typically 6-9 months) where there is an opportunity to strategically market the assets and sell for an asking price that is higher than what a forced value would be.
Make sure that prior to engaging any appraisal firm that their reports comply with USPAP, and you have been directed or selected the appropriate definition of value(s) for your situation.