Approaches and Types of Value
APPROACHES TO VALUE
Market or Sales Approach is the approach to value where recent sales and offering prices of similar assets are analyzed to arrive at an indication of the most probable selling price of the asset being appraised. The Market Approach, also referred to as the Sales Approach, is based on the premise that the asset is continuing to be used, so that a knowledgeable purchaser can go to the market place and buy an existing one. The market is an established means of buying and selling assets through channels including auctions, second hand dealers, public and private sales.
Cost Approach is the approach which measures value by determining the current cost of an asset and deducting for depreciation or adding for appreciation, physical deterioration, functional and economic obsolescence. The Cost Approach is based on the premise that a knowledgeable buyer will not pay more for an asset than the cost to produce a substitute asset with the same utility as the subject.
Income Approach is the approach which measures value based on the assumption that value is related to the economic income that the asset can be expected to earn. The income approach is the present worth of future benefits (income) of ownership. It is not usually applied to individual items of personal property since it is difficult, if not impossible, to identify individual income streams.
Types of Value
Fair Market Value:
Fair Market Value (FMV) is the price that property would sell for on the open market. It is the price that would be agreed on between a willing buyer and a willing seller, with neither being required to act, and both having reasonable knowledge of the relevant facts. (Treasury Regulation 20.2031-2 (b)): The FMV is the price at which the property would change hands between a willing buyer and a willing seller, neither being under any compulsion to buy or sell, and both having reasonable knowledge of relevant facts. The FMV of a particular item of property includable in the decedent’s gross estate is not to be determined by a forced sale price. Nor is the FMV of an item of property to be determined by the sale price of an item in a market other than that in which such item is most commonly sold to the public, taking into account location of the item wherever appropriate. In the case of an item of property includable in the decedent’s gross estate, which is generally obtained by the public in the retail market, the FMV of such an item of property is the price at which the item or a comparable item would be sold at retail.
Fair Market value in Continued Use:
Fair Market value in Continued Use is the estimated amount, expressed in terms of money, that may reasonably be expected for a property in an exchange between a willing buyer and a willing seller, with equity to both, neither under any compulsion to buy or sell, and both fully aware of all relevant facts, including installation, as of a specific date and assuming that the business earnings support the value reported. This amount includes all normal direct and indirect costs, such as installation and other assemblage costs to make the property fully operational.
Fair Market Value – Installed:
Fair Market Value – Installed is the estimated amount, expressed in terms of money, that may reasonably be expected for an installed property in an exchange between a willing buyer and a willing seller, with equity to both, neither under any compulsion to buy or sell, and both fully aware of all relevant facts, including installation, as of a specific date. This amount includes all normal direct and indirect costs, such as installation and other assemblage costs, necessary to make the property fully operational.
Orderly Liquidation Value:
Orderly Liquidation value is the appraiser’s professional opinion of the estimated gross amount expressed in terms of dollars, which the asset could typically realize if exposed for public sale at a properly advertised and professionally managed orderly liquidation at a listed or negotiated price usually within a specified time as of the effective date of the appraisal report. Further, the ability of the asset group to draw sufficient prospective buyers to insure competitive offers are considered. All assets are to be sold on a per item basis, in “as is” conditions with purchasers responsible for removal of assets at their own risks and expenses. Any deletions or additions to the total package could change the psychological and/or monetary appeal necessary to gain the price indicated.
Forced Liquidation Value:
Forced Liquidation Value is the estimated gross amount, expressed in terms of money, that could typically 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.
Salvage Value is the estimated 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.
Scrap Value is the estimated 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.
Insurance Replacement Value:
Insurance Replacement Value is the replacement or reproduction cost new as defined in the insurance policy less the cost new of the items specifically excluded in the policy, as of a specific date.
Insurable Value Depreciated:
Insurable Value Depreciated is the insurance replacement or reproduction cost new less accrued depreciation considered for insurance purposes, as defined in the insurance policy or other agreements, as of a specific date.
Desktop Review is the appraiser’s professional opinion of a defined value based on materials or information that has been supplied to him and evaluated without the benefit of an actual on-site observation. A desktop opinion or review should be subject to an actual on-site observation and appraisal. A desktop opinion or review is used to substantiate the need for an appraisal and should not be used for credit purposes. * It should be remembered that a desktop opinion or review is a limited appraisal method that may be used to value large amounts of inventories or other assets without actually inspecting each item. The appraiser should remember that this method results in something less than that normally required by USPAP.
In-Place Value is the appraiser’s professional opinion of the gross dollar amount to be realized in the sale of all of the assets between a willing buyer and a willing seller in the open market assuming that neither party is under compulsion to buy or sell, both being fully aware of all relevant facts. This value assumes that the property is being sold “as is, where is” in present condition to a buyer who will maintain these assets in their entirety, in their present location as of the date of this appraisal. The In-Place Value takes into consideration the following: a. The Fair Market Value of the assets and b. The convenience and cost saved by being in place, ready to use. The In-Place Value places no value upon financial condition of the owners or good will.
WHAT OUR CLIENTS ARE SAYING
“To Whom It May Concern: Due to recent unexpected circumstances, our company came into possession of hundreds of items of inventory that were unrelated to our current field of business. After a few short phone calls and simple emails, Auction Masters took immediate action. With amazing speed, all of the inventory was professionally photographed, categorized, detailed, and up for auction with minimal guidance from us. Their efficient marketing resulted in a quick and well organized sale. Within a couple of weeks we received the final proceeds of the auction which doubled our initial expectations. We will not hesitate to retain Auction Masters for all of our future inventory reduction needs. “
“I have been very pleased with the professionalism, organization, and quick response time that Auction Masters has provided for my organization. We have partnered with AM for the past 12 months on 20+ different auctions and they have been on target with minimal errors or hiccups. When issues have happened they have been quick to recover and flexible in creating a recovery strategy for both my organization and the buyers. I appreciate the partnership we have created with Frank, Jason, and the warehouse team in executing the sales of our equipment and furniture.”
“I have worked with Greg and Sharon and their staff at Auction Masters for many years and it has always been a positive experience. Everything from selling whole restaurant equipment packages to selling the odd item at their consignment auctions. They are talented professionals that operate with integrity for both the buyer and the seller. I recommend using Auction Masters, whether buying or selling without reservation. I believe they are among the best at what they do!”
“Just wanted to show appreciation for helping liquidate our equipment and inventory. It was a fast, painless process that exceeded my expectations at all levels. Sharon was very professional and managed all activities during pickup and loading. I would highly recommend your services to anyone needing on-line auction services. I will surely be contacting you in the future.”
“Thank you so much you guys did an Awesome job!!….Our Salon had folks coming and going all day (most brought in the post card you mailed to them). We will definitely recommend Action Masters for anyone that is need of this type of service…”
“Auction Masters has been a great resource for us. They are efficient easy to work with, and are able to find buyers for items that would have otherwise been impossible for us to find on our own. “