How the value definition affects the assignment results…

An “intended user” of the appraisal is the equipment owner, and he (or she) and is disappointed with the assignment results.  The equipment owner’s bank requested the appraisal so the first thing the owner should ask about is what the bank ordered in terms of a “value definition”.  The appraiser is obliged to present an unbiased estimate of value based upon the scope of work and definition of value.

The bank (or lender) is the client and is looking for a worst-case value scenario.  In cases like this, the lender is looking for an appraisal indicating some sort of liquidation value.  In many cases the lender will request Orderly Liquidation Value.  The definition of 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.”

 Orderly liquidation value takes into account all depreciation and obsolescence along with the costs to dismantle, remove, and transport the equipment.  Crucially, there must be a reasonable exposure time to market and sell the equipment.  The time frame for many pieces of concrete products equipment can be nine to twelve months, or longer.

 If the lender is looking for a quicker turn around, then another potential value definition is Forced Liquidation.  The definition of 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.” 

Forced Liquidation Value considers the estimated costs involved in labeling, scheduling and marketing the auction, and potential seller’s premium and commission.  The appraiser would also consider all dismantle and removal costs when determining an estimate of value under the definition of forced liquidation.  The time frame for an auction sale is three to six months.