The subject of a recent appraisal required me to form an opinion of the market value of the going concern of a business enterprise. As it turns out, the value of the business was significantly higher than the value of the underlying real estate asset. Most of the difference was attributable to intangible assets of the business enterprise (supplier contracts, labor coordination, etc.). Similar situations are fueling the debate that now rages in the appraisal industry. The debate centers around how value is allocated between tangible and intangible assets of a business enterprise. The Uniform Standards of Professional Appraisal Practice (USPAP), the federal guidelines governing the appraisal industry, stipulate that:
“When personal property, trade fixtures, or intangible items are included in the appraisal, the appraiser must analyze the effect on value of such non-real property items.”
This requirement to allocate value between tangible and intangible assets has huge implications for businesses, particularly for those with a high percentage of intangible assets (nationally branded hotel and restaurant franchises, for example). Naturally, those property owners seeking lower real estate taxes prefer a lower allocation to the real estate and those seeking financing prefer a higher allocation. The appraisal community remains divided over which method best demarcates the line between tangible and intangible property value.
Not surprisingly, opinions among expert appraisers are polarized. On one hand, appraisers involved in tax appeal work favor a method resulting in a lower allocation to the real estate. On the other hand, appraisers involved in securing financing favor a method resulting in a higher allocation to the real estate. I’m not suggesting that either side is acting in the role of an advocate for their clients (something not allowed for appraisers). Perhaps people are naturally inclined to work for those with whom they are philosophically aligned. And honest men do sometimes honestly disagree.
However, while reading through relevant literature, an attempt by one appraiser to discredit his opponent through the use of deceptive tactics was all too transparent. For me, the jury is still out as I weigh the evidence. But ultimately, deceptive tactics serve only to undermine credibility and expose a weak position.