Appraisal Glossary of Terms
Appraisal?– an unbiased and independent opinion of value.
Approaches to Value?– the three recognized approaches used in appraisal analysis. They are as follows.
Cost Approach?– Calculation of value beginning with a determination of the replacement cost of a new asset of the same or similar utility, followed by deductions for all forms of depreciation to the subject asset including; physical (age, condition), technological obsolescence and economic obsolescence
Income Approach?– capitalization of current net income or projected net cash flow and discounts those at a calculated rate to estimate current value. This is the least employed approach to value in single asset appraisals of equipment
Sales Comparison or Market Approach?– involves the collection of market sales data pertaining to the subject assets being appraised in order to determine the desireablility of the assets through recent sales or offerings of similar assets currently on the market in order to derive the most probable selling price for the assets being appraised. In high tech technology, values change rapidly and little market data may exist for certain assets.
Concepts of Value?– appraisal assignments often require more than one value. The appraiser, before beginning the process will investigate the assignment thoroughly in order to arrive at the concept that best suits the situation and purpose of the appraisal assignment. Some of the most common values are as follows.
Fair Market Value?– the estimated amount, expressed in terms of money, which may reasonably be expected for a property in an exchange between 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, as of a specific date.
Fair Market Value in Place & In Use?– same as above, but adds to it such costs as installation, transportation, rigging, selling, expenses, commission and taxes.
Forced Liquidation Value?– 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.
Orderly Liquidation Value?– the estimated gross amount, expressed in terms of money, which could typically be realized from a liquidation sale, given a reasonable period of time to find a purchaser(s) with the seller being compelled to sell on an as-is/where-is basis, as of a specific date.
Residual Value?– the projected value expected by a lessor at the termination of a “fair market value” lease. This value usually falls somewhere between the fair market value and its orderly liquidation value and is based upon the lessor’s calculated expectations of the willingness of the lessee to buy the equipment at its fair market value. IN the event the lessee elects to return the equipment, the lessor is likely to dispose of the equipment at its orderly liquidation value.
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