AN APPRAISAL: THE FIRST VALUE OPINION YOU RELY ON
An appraisal is defined as an opinion of value. Our reports are well-researched and analyzed to provide our clients a reliable estimate of value for their commercial assets. Some of the reasons an appraisal is required are discussed below.
FINANCING Whenever a lender or investor provides monies for a mortgage, they want to know if the value of the underlying property is marketable and how much it can be sold for to cover the amount loaned for that real estate. An appraisal provides such an opinion of value upon which the lender relies to complete the loan transaction.
REAL ESTATE ASSESSED VALUE DISPUTES All real estate taxes are based upon an assessed value which is completed by a taxing authority, such as a city or county assessing department. When values declined during the 2008 to 2012 recession, the assessed values often were higher than the actual market value of the property. This difference resulted in many instances where an independent appraisal was used to challenge the valuation placed on the property by the assessor.
CHARITABLE DONATIONS Individuals, trusts and various institutions are able to donate real estate to other institutions such as colleges, municipalities, charities, and so forth. The Internal Revenue Service (IRS) requires that an appraisal be provided to establish a value for most real estate assets. The estimated value can then be deducted from the donor’s income resulting in a potential reduction in income taxes owed.
EMINENT DOMAIN When new roads are constructed, old highways expanded, or new utilities installed, an easement is acquired to use that land in perpetuity. In order to establish the value of the property being acquired for this right-of-way, an appraisal is required.
If the owner of the property disputes the value offered by the condemning authority, a second appraisal can be completed for the owner by an independent appraiser. Minnesota State Law requires that the condemnor reimburse the owner up to $5,000 for a commercial appraisal to resolve this dispute.
ESTATE TAX VALUATIONS Whenever someone dies they leave behind an estate. If the estate contains real estate, the difference between the original price paid for the realty and the current value of the property may result in inheritance or capital gains taxes being paid to the government. An appraisal provides a value of the property at the time of death so the current value of the realty can be established.
FAMILY LIMITED PARTNERSHIPS (FLP) When members of an FLP die or desire to leave a family partnership, their share of the total assets must be valued. Those members who do not own at least 51% of the assets will have their shares discounted to reflect the lack of marketability incurred in selling those shares. An appraisal can provide the appropriate discount rate to apply to minority interest shares.
DISSOLUTIONS When marriages or partnerships break up, there may be substantial real estate assets which need to be valued. In order to divide the property equitably among the parties involved, an appraisal is often obtained to provide that value opinion. Minority interest in the realty and other property interests can also be estimated.
PORTFOLIO VALUATIONS If an investor has numerous properties which have been held for long periods of time, the values of those assets have probably changed. If the assets need to be divided among shareholders or family members those assets must be valued. An appraisal can provide an answer for equitably dividing those individual shares.
EVALUATIONS: Lending institutions also need to periodically determine if the underlying value of real estate assets support the loan amount originally placed on the realty. An appraisal is often not required if the underlying value to mortgage ratio has not changed. An Evaluation provides a cost effective means of determining if the value of the assets still support that underlying mortgage relationship.
EASEMENT VALUATIONS A real estate parcel can be subject to a variety of easements. Each can, to some degree, affect the value of real property. Most easements continue with the underlying property long after it transfers to a new owner.
When a new easement is obtained over real property, some form of compensation is offered by the condemning authority. An appraisal provides a means of establishing a market value for the easement being acquired so that the owner receives just compensation for any loss of property rights taken as a result of the easement.