Introduction

When you need to know the market value of fixed assets for buying, selling, financing, or litigation, our licensed and certified appraisers can respond in a timely manner.

The Appraisal Associates fixed assets valuation professionals have appraised assets across a wide range of industries.

Categories of fixed assets include buildings and improvements, machinery and equipment, furniture and fixtures, and other specialized assets. Our expertise ranges from complex manufacturing operations to retail businesses.

Our appraisal experience in valuation of real property includes:

• Industrial Plants
• Warehouses
• Office Buildings
• Shopping Centers
• Retail and Special Use Properties
• Vacant Land

Our appraisal experience in valuation of machinery and equipment includes:

• Machinery & Equipment
• Store Fixtures
• Vehicles
• Computers
• Office Furniture
• Inventory & Supplies
• Tooling

 

Purpose of the Appraisal

Accurately identifying, documenting and valuing business related assets are important for a creditable appraisal report, especially when the appraisal is needed for:

• Buy / Sell transactions
• Mergers and acquisitions
• Financial reporting
• Allocation of Purchase Price
• Ownership and Damage Disputes
• Collateral Value for Obtaining Financing
• Bankruptcy
• Charitable contributions
• Financing Insurance
• Leasing Liquidations

To provide an accurate record of the items being appraised, our appraisal reports include maps, pictures, model numbers, serial numbers and other descriptive information. Values are supported through personal inspection, proper research and contact with manufacturers and suppliers.

Our appraisal services have been utilized by:

• Buyers
• Sellers
• Financial Institutions
• Governmental Agencies

 

Our Approach

The standard of value that we utilize in these matters depends upon the purpose of the assignment and client requirements.

Examples include replacement cost new, original/historical cost, fair market value, salvage value, and liquidation value. Our appraisers assist clients in determining the appropriate standard of value for each situation.

Determining market value requires a thorough understanding of the relationship between costs, guideline market transactions and income capacity. To provide creditable appraisal reports and stay current with market conditions, we subscribe to cost surveys, market databases, appraisal industry publications and proprietary databases.

In performing fixed assets appraisals, Appraisal Associates professionals prepare a complete inventory of the assets at the business location. This inventory includes a description of the assets as well as an analysis of their age and condition. We then perform research into the marketplace for each of the assets identified. Our research includes reference to a variety of publications, as well as discussions with individuals knowledgeable about the marketplace for these assets.

Our fixed assets specialists have experience in providing testimony, both in depositions and court proceedings, regarding their conclusions of value. In addition, we can provide litigation support functions related to fixed assets matters, such as helping to formulate discovery requests, reviewing other appraisals, and preparing direct and rebuttal testimony.

 

Appraisal Methodology

The three traditional fixed assets appraisal methods are:

1. the Direct Sales Comparison Method,
2. the Income Method, and
3. the Cost Method.

Each of these methods results in a separate appraisal indication for the property being appraised. Then a reconciliation process is performed to weigh the strengths and weaknesses of each method. Once this has been accomplished, a value judgment is reached by placing primary weight on the technique, or techniques, that are considered to be the most reliable, given all factors.

Therefore, the selection of appropriate appraisal method and reconciliation of the results arrived by application of various methods are crucially important for final conclusion of value. Only appraisers with appropriate technical skills and market experiences can provide users of the appraisal reports with credible appraisal results.

Direct Sales Comparison Method
Direct Sales Comparison Method is based on the premise that persons in the marketplace buy by comparison hence; this technique is also based on the principle of substitution. In other words, it is based on the premise that a prudent purchaser would pay no more for a given property than the cost to acquire a property of equal utility and quality. Direct Sales Comparison Method involves acquiring market sales/listings data on properties similar to the subject property. The comparable prices are then adjusted for any dissimilar characteristics as compared to the subject's characteristics. Once the sales prices are adjusted, they can be reconciled to estimate the market value for the subject property.

Income Method
Income Method of appraisal is based on the principle of anticipation. According to this principle a typical investor/purchaser in the market purchases real estate in the anticipation of receiving future income and benefits. In other words, the value may be defined as the present value of all rights to future benefits that will accrue to the owner. The first step in the Income Method is to estimate the subject's potential net income (PNI) that could be derived from the asset. It is important to understand that this income must be for the asset only (usually in the form of lease payments received from a tenant) and not income attributable to a business. The subject's PNI is projected by using the subject's historic net rents or lease and also market net rents or lease obtained from comparable properties. The net operating income is then divided by an overall capitalization rate, or is projected into the future and discounted to a present value, to calculate the market value using the Income Method.

Cost Method
Cost Method is based on the assumption of replacement, whereby a prudent buyer would pay no more for a property than the cost at which he could produce. Cost Method breaks the value of the property down into its component parts of land, land improvements, infrastructure, buildings and machinery and equipment.
Usually, the Cost Method requires an estimate of the Replacement Cost New of the asset. This amount is then depreciated to reflect the remaining useful life of the asset. Depreciation reflects functional and economic obsolescence as well as physical deterioration based upon the age and physical condition of the asset.

Strengths and Weaknesses of the Appraisal Methods
The final step in the appraisal process is the correlation of the final value estimate by reconciling the results of the applicable methods into one value estimate after analysis of the strengths and weaknesses of each appraisal method.

Each method has its own strengths and weaknesses in any appraisal. Furthermore, applicability of the appraisal method depends on each particular case.
The advantage of the Direct Sales Comparison Method lies in the fact that it is based on market prices at which the turnover of fixed assets had been carried out lately. The weakness of this method is that the properties that have been compared usually are not of an equal quality, utility or construction material. The advantage of the Income Method is based on the anticipated cash flows from renting the properties, not on their static value when it comes to expenditures in construction or purchasing. However, this method is limited due to the application of the assumptions related to the economic conditions for renting the property, which could be speculative. The strength of the Cost Method is that it is usually based in more reliable and accessible data. However, this method does not reflect the return on the investments.