Asset appraisals are now one of the most effective tools used by financial institutions, trustees, landlords, as well as anyone making important financial decisions. Liquidation Value, Fair Market Value and Replacement Cost Value, are the three types of appraisals most commonly requested. Most appraisals are requested by trustees, lawyers or financial institutions.
Why would an Appraisal be ordered?
• to determine value of assets during a distress situation
• to settle an estate - probate
• to provide equitable asset distribution
• to provide fair market value for sale to a third party
• to obtain a loan (Small Business Development Loan)
• to establish replacement cost for insurance · business valuations
Forced or Liquidation Value can be defined as the price paid for goods when there was a financial situation, or other circumstances, existing at the time of the sale so as to require a sacrifice. This type of appraisal is used by financial institutions in order to determine options in a distressed situation
Fair Market Value or Going Concern
This type of appraisal is used to determine the value obtainable for the assets through private negotiations between a willing buyer and seller on a total entity basis in order to continue operations in place, over an acceptable period of time. The values will be higher than those of a Forced or Liquidation appraisal while still reflecting the age and usage of equipment.
Replacement Cost Value
Although this type of appraisal is common for insurance purposes it has become the most important tool for financing Small Business. Small Business Loan financing requires an accredited appraiser to conduct a detailed appraisal of existing assets as well as taking leasehold improvements and set up cost into consideration. The purpose of this appraisal is to justify the money previously spent to start the business. Therefore verifying that the requirements of the financial institution were met as well as the Federal Government of Canada in the case of government guaranteed loans.