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APPRAISAL DEFINITIONS & METHODOLOGY

APPRAISAL DEFINITIONS

  1. Reproduction cost new is the current cost of reproducing a new replica of a property with the same or closely similar materials, as of a specific date.
  2. Replacement cost new is the current cost of a similar new property having the nearest equivalent utility as the property being appraised, as of a specific date.
  3. Fair Market Value is an opinion expressed in terms of money, at which the property would change hands between a willing buyer and a willing seller, neither being under any compulsion to buy or to sell and both having reasonable knowledge of the relevant facts, as of a specific date.
  4. Fair Market Value in Continued Use with Assumed Earnings is an opinion expressed in terms of money, at which the property would change hands between a willing buyer and a willing seller, neither being under any compulsion to buy or to sell and both having reasonable knowledge of the relevant facts, as of a specific date and assuming that the business earnings support the value reported, without verification.
  5. Fair Market Value in Continued Use with an Earnings Analysis is an opinion expressed in terms of money, at which the property would change hands between a willing buyer and a willing seller, neither being under any compulsion to buy or to sell and both having reasonable knowledge of the relevant facts, as of a specific date and supported by the earnings of the business.
  6. Fair Market Value - Installed is an opinion expressed in terms of money, at which the property would change hands between a willing buyer and a willing seller, neither being under any compulsion to buy or to sell and both having reasonable knowledge of the relevant facts, considering market conditions for the asset being valued, independent of earnings generated by the business in which the property is or will be installed, as of a specific date.
  7. Fair Market Value – Removed is an opinion expressed in terms of money, at which the property would change hands between a willing buyer and a willing seller, neither being under any compulsion to buy or to sell and both having reasonable knowledge of the relevant facts, considering removal of property to another location, as of a specific date.
  8. Liquidation Value in place is an opinion of the gross amount expressed in terms of money that typically could be realized from a properly advertised transaction, with the seller being compelled to sell, as of a specific date, for a failed, non-operating facility, assuming the entire facility is sold intact.
  9. Orderly Liquidation Value is an opinion of the gross amount, expressed in terms of money, that typically could be realized from a liquidation sale, given a reasonable period of time to find a purchaser (or purchasers), with the seller being compelled to sell on an as-is where-is basis, as of a specific date.
  10. Forced Liquidation Value is an opinion of the gross amount, expressed in terms of money, that typically could 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.
  11. Salvage Value is an opinion of the 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.
  12. Scrap Value is an opinion of the 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.
  13. Insurance Replacement Cost is the replacement cost new as defined in the insurance policy less the replacement cost new of the items specifically excluded in the policy, if any, as of a specific date.
  14. Insurance Value Depreciated is the insurance replacement cost new less accrued depreciation considered for insurance purposes as defined in the insurance policy or other agreements, as of a specific date.

APPRAISAL METHODOLOGY

There are three recognized approaches to value: cost, market, and income:

COST APPROACH

This approach is based on the proposition that the informed purchaser would pay no more for the property than the cost of a substitute property with the same utility as the subject property. From this estimated cost the accrued appraisal depreciation is deducted to arrive at an indication of value. Appraisal depreciation consists of the physical (deterioration), functional and economic obsolescence. Physical obsolescence is the utility loss attributed mainly to wear and tear and exposure to the elements. Functional obsolescence is due to factors inherent in the property itself and could be because of design changes of processes resulting in inadequacy, overcapacity, excess construction, lack of utility, or excessive operating cost. Economic obsolescence is caused by unfavorable external conditions such as industry economics, availability of financing, loss of material or labor sources, legislation or ordinances. The cost approach is required with special purpose assets where there is no market information.

MARKET APPROACH

This approach involves the collection of market data pertaining to the subject assets. Recent sales or offerings of similar properties are compared in order to arrive at an indication of the most probable selling price for the assets being appraised. If the comparables are not exactly similar, adjustments must be made to bring them as closely in line as possible. This is the primary approach used unless otherwise stated.

INCOME APPROACH

This approach considers value in relation to the present worth of the future benefits of ownership and is usually measured through the capitalization of a specific level of income. This approach is not usually used in the valuation of machinery and equipment since it is difficult to isolate income attributable to such assets.