Refreshing Our Vision for Our Work Appraisal is one of the oldest and most universal human habits. Humans have been appraising since the beginning of time. Appraisal is also a uniquely human habit requiring a spectrum of skills and thought processes that are not found in nature or machines. While often impugned for being faulty and having a variety of biases, our ability to “appraise,” assess, form judgments, and complex connections is the essence of the arts and humanities, crafts and trades, sciences, data sciences, and commercial activities. It is one of the foundational attributes of human intelligence. Yet, we…
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The Consistency of Data and Trends The real estate sector encompasses a variety of activities, limited only by the imagination, including: selling, leasing, management, development, appraisal, title services, and investment. When valuing businesses linked to the real estate market, whether directly or indirectly, it is essential to examine both the risk and the cash flow generating ability of each company. The co-authors of this article share essential aspects appraisers must consider in these valuation engagements. The real estate sector encompasses a variety of activities, limited only by the imagination, including: selling, leasing, management, development, appraisal, title services, and investment. When…
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An Outline for Making Awards Useful and Final (Part III of III) Appraisal is a frequently used and often maligned method to adjudicate disputes in the property insurance world. Typically, appraisal is used for the purposes of evaluation only and will not bring finality to a claim in which coverage, or, in certain jurisdictions, causation is also being disputed. Although the perceived advantages of appraisal versus litigation are that it is considered fast, inexpensive, and relatively final, the appraisal process is often criticized because of unpredictable awards that are not helpful in settling a disputed claim and, in some cases,…
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Guidelines for Resolving Disputes in First Party Property Insurance Claims (Part I of III) Appraisal is a frequently used and often maligned method to adjudicate disputes in the property insurance world. Typically, appraisal is used for the purposes of evaluation only and will not bring finality to a claim in which coverage, or, in certain jurisdictions, causation is also being disputed. Although the perceived advantages of appraisal versus litigation are that it is considered fast, inexpensive, and relatively final, the appraisal process is often criticized because of unpredictable awards that are not helpful in settling a disputed claim and, in…
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Citation Omitted What makes the world of expert witness services so daunting at times is the fact that so much goes unsaid, untaught, or undefined. For example, the most recent international glossary used by valuation and appraisal professionals across the globe does not define what a conclusion or opinion is. Since saying the silent part out loud seems to be the popular thing to do, this tenth article of the Unimpeachable Neutrality series will attempt to cover the most pertinent unspoken rules of being a financial expert that you might not find issued, published, promulgated, or cited as authoritative. As…
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Avoid Traps with a Timely Appraisal New basis-consistency requirements make defensible valuations of inherited property even more important. Informed taxpayers are aware that only the wealthiest individuals should have concerns about the federal estate and gift tax, for gifts given and decedents dying in 2018 through 2025. Thanks to the legislation known as the Tax Cuts and Jobs Act (TCJA), P.L. 115-97, the basic exclusion amount is more than $11 million per individual ($22 million for married couples), indexed for inflation. Now, estate planners are spending less time and using fewer resources trying to avoid federal estate taxes for clients.…
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Highlighting Recent Delaware Court Cases In this Case Law Update, three recent Delaware Court cases are reviewed. Two cases focus on whether the deal value is fair value and the third focuses on matters discovered following approval of a merger and who has standing to sue and what remedy, if any, is available to the disgruntled plaintiffs. The first two cases also delve into the role of experts, inputs that are used in the DCF (and usually contested), and the role of board members overseeing the process, as well as the value of process itself discovering price. The third case…
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Fair Value Not Based on the Merger Price (Part II of II) This is the second of a two-part article (read part one here) that focuses on the SWS Group, Inc. case and the interplay between merger price and fair value. In earlier cases, the Delaware Court of Chancery rejected a merger price indication in favor of its own discounted cash flow analysis. Yet, in the SWS Group, Inc. appraisal decision, instead of a decision supporting a higher fair value, the court ultimately found that the merger price was too high. This ruling highlights the risk of an arbitrage appraisal…
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Fair Value Not Based on the Merger Price, Part I of II This is a two-part article that focuses on the SWS Group Inc. case and the interplay between merger price and fair value. In earlier cases the Delaware Court of Chancery rejected a merger price indication in favor of its own discounted cash flow analysis. Yet, in the SWS Group, Inc., appraisal decision, instead of a decision supporting a higher fair value, the court ultimately found that the merger price was too high. This ruling highlights the risk of an arbitrage appraisal strategy and may give dissenting shareholders something…
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Research Says “No” In any business sector, one of the biggest challenges is to differentiate oneself. For a variety of reasons, this is especially difficult in the accounting and valuation and appraisal field, where many firms struggle to find ways to stand out. In fact, most firms end up making essentially the same claims about what makes them different. In this article, Dr. Frederiksen discusses his findings and suggests ways to differentiate the services and land clients.
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Add Value and Differentiate Your Business Valuation Practice In this article, Dr. Sheeler issues a personal challenge to credentialed business valuation professionals. Dr. Sheeler challenges credentialed professionals to be more introspective and become more relevant in a market where commoditization does not enable clients and end users to understand the value professionals can and should bring. Dr. Sheeler adds that this realization has led him to write a Wiley Finance book called Equity Value Enhancement (EVE) and dig deep into the acronym GRRK. GRRK stands for Governance, Relationships, Risks, and Knowledge. Each is intangible, but their influence is very concrete…
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Similarities and Differences in Securities Valuation Over the past three decades, the number of both dissenting shareholder appraisal rights claims and shareholder oppression claims have increased significantly. This increase has created a demand for forensic-related business and security valuation services. Valuation analysts are not legal counsel, of course. However, valuation analysts who practice in this area should be generally familiar with both the economic and the legal differences between dissenting shareholder appraisal rights issues and shareholder oppression issues. While taking specific legal instruction from legal counsel, valuation analysts should have a general familiarity with the professional guidance provided by the…
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When Performing a Business Valuation Earnings are not always objective and valuations apply a multiple to earnings to determine a company’s value. The elements making up a company’s valuation involve determining normalized earnings, a decision whether income taxes would be applied, and the capitalization rate to be used to get the value. There are also other factors, but this article looks at the quality of earnings.
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Calculation engagements require development standards A proper calculation engagement requires planning, mutually agreed upon procedures, and adherence to professional standards. Otherwise, the valuation analyst and firm risk damaging their good name and reputation.
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Fannie Mae has officially launched a new website focused solely on appraiser quality monitoring. The site is based on Fannie’s new appraisal review process, which was created to support data accuracy and consistency. Through the site, lenders now have access to a list of appraisers whose reports are subject to a complete and thorough review by the agency, as well as those whose work is no longer accepted. Access to the list, which is updated monthly, is gained through the Technology Manager portion of Fannie’s website and is available to sellers and service providers alike. The monitoring site arises, in…
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Appraising marina properties is a challenging niche with as many variables as there are bodies of water Just like appraisals on dry land, location plays a major role in developing an opinion of value for a marina property, but the criteria for an appraisal can be a little different from those of landlocked commercial enterprises. Here are a few of the questions that must be considered when valuing marina property.
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A frequently missed opportunity for appraisers This article provides an overview of some of the complex rules relating to the built-in gains tax. It is intended only to acquaint business valuators with the structure of the tax and some of the key considerations which the business valuator must address.
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Requiring Valuation Analysts to Have Specialized Trainingk Credentials, and to Adhere to Professional Standards Will Protect ESOP Participants and Beneficiaries CPA Practice Advisor reports that the President and CEO of the American Institute of CPAs (AICPA), Barry C. Melancon, CPA, CGMA, has publicly announced his organization’s support for a new bill in the House of Representatives. H.R. 2041 would modify the definition of fiduciary under the Employee Retirement Income Security Act of 1974 to exclude appraisers of employee stock ownership plans. Here’s more:
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Plus: Bishop v. Commissioner Rules on When and Whether a Bad Debt Loss Can Be a Claimed Deduction In Schwab v. Commissioner, a case turns on when a variable universal life insurance policy is a taxable event. In Boone Operations Co., LLC v. Commissioner, find out when contributing fill dirt to the city of Tucson is or isn’t a charitable or taxable event.
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Choosing an Appropriate Weighted Average Cost of Capital Definition Sometimes Depends On Context Valuation principles generally hold that the value of a business is largely a function of return on invested capital and growth, writes J. Richard Claywell, since these are the primary drivers of free cash flow. But how does this cash flow relate to the asset and liability values on the balance sheet?