An Appraisal is an opinion of value. These opinions rely upon the information which has been researched and analyzed by an appraisal professional. Valuations provided by two appraisers may differ slightly or significantly. Here are some circumstances where a second opinion may help resolve those differences.
PARTNERSHIP DISSOLUTIONS When a marriage or a business partnership ends, the value of commercial assets held by the partners can be significant. If each partner has a separate valuation prepared, the value differences may be significant. Often a third valuation may be required to resolve this difference.
A review of the methodologies used in each appraisal may provide a less expensive option than obtaining a third appraisal. A review can often provide the expertise needed to determine if the proper valuation methods or data used were appropriate for the asset(s) being valued.
MINORITY DISCOUNTS FOR LIMITED PARTNERSHIPS When a group of investors join a general partner to purchase real estate, the terms of the partnership may not be clearly defined for the early withdrawal of one of the limited partners. Determining the appropriate discount which should be applied to this minority interest can be accomplished by an analysis of other partnership re-sale discounts.
EMINENT DOMAIN When infrastructure, such as a highway or utility, is being expanded, a parcel of real estate is affected by a partial taking of the property for right-of-way purposes. Included in the area being acquired may be existing easements which must also be valued in addition to new land being acquired for new right-of-way easements.
Included within the area being acquired or “taken” there may be improvements which will be affected. Or loss of property rights (uses) which may also may be considered compensable losses. Severance damages may also need to be considered.
If part of the parking area is removed, will it impact the property over a short or long term period. Could a loss in parking result in a loss in business? Will the value of the business be affected? If existing improvements are removed, can they be replaced somewhere else on the remainder of the site, or must their loss be compensated?
These and other questions can be identified by a review of the appraisal prepared by the eminent domain authority. A second appraisal may be necessary to quantify the loss and determine if all potential losses have been considered.
INSURABLE REPLACEMENT VALUES Insurance companies often index the replacement cost of buildings based upon their original or older cost estimates. The premium paid for the building insurance is based upon that cost estimate. If an error was made, it could carry forward and result in the building being either under or over valued. A current replacement cost analysis of the improvements can provide assurance that the property is adequately insured.
DISPARITIES BETWEEN APPRAISAL VALUATIONS If two appraisals are presented to resolve a real estate valuation dispute, the value conclusions could be considerably different. Often, a difference in the methodology used to value the property, or the assumptions made in the valuation process, may be the cause for the difference.
A review of both appraisals analyzes these potential differences. Has the most reliable market information supporting each value conclusion been considered? The review is often a cost effective means of reconciling those differences.