APPRAISAL 101 TOPICS
There are a number of definitions of value regularly used by a machinery and equipment appraiser. The types of value below are the ones used most frequently. Most frequently used definitions are based on the official definitions published by the American Society of Appraisers’ Machinery and Technical Specialties committee in August 2010, except as otherwise noted.
Additional special purpose definitions are used for some accounting, insurance and condemnation appraisals, including Replacement Cost New, Reproduction Cost New, Salvage Value, Scrap Value, Actual Cash Value and a number of others. Which definitions should be used for each appraisal varies, depending on applicable laws and client needs.
Fair Market Value
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 relevant facts.
This is considered synonymous with “market value” and is based on the Internal Revenue Service definition in IRS Revenue Ruling 59-60 and the following U.S. Regulations: 26 CFR 1.170A-1 – Charitable Donations, 26 CFR 20.2031-1(b) – Estate Tax, and 26 CFR 25.2512-1 – Gift Tax.
Typical uses: Bank loans & financing, sales of assets, charitable donation, property (ad valorem) taxes, insurance, estate planning.
Orderly Liquidation Value
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.
This premise of value reflects the sale of an asset by a motivated seller after an adequate marketing period to sell the property.
Typical uses: Bank loans & financing, property transfer, insurance.
Forced Liquidation Value
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.
Typical uses: Bank loans & financing, property transfer, insurance, business liquidation.
Fair Value is the price that would be received for an asset or paid to transfer a liability in an orderly transaction between marketplace participants at the measurement date. (Definition per FASB Statement No. 157 Fair Value Measurement, Paragraph 5 as referred to in FASB Statement No. 141r Business Combinations, Paragraph 3. b. and SFAS No. 142, paragraph 23).
Typical uses: Purchase price allocation, financial reporting