Real Estate Appraisal Services

Although business valuation and the appraisal of real estate are frequently viewed as separate disciplines, the underlying principle for each is the same: value is the present worth of anticipated benefits.

Both business appraisers and real estate appraisers base their opinions on the income stream generated by the subject asset (except when the real estate is land only). Each discipline has its own label for the income stream. The real estate appraiser labels it “net operating income” (NOI) and the business appraiser calls it “net income before or after tax”. Both use the same approaches to value (cost, market, and income) as well as the same standard of value (market value). In real estate valuation, tangible assets, such as land and buildings, provide the basis for value.

There are two notable differences:

  1. Real estate appraisals are traditionally based on a “before debt basis”.
  2. Capitalization and discount rates for real estate valuations tend to be lower than those for business valuations.

A quality appraisal is supported by evidence found in the marketplace. The methods and standards of value employed are the same regardless of the intended use of the appraisal: marriage dissolution, financing, gifting, tax appeals, and so on. The more unique the appraisal project, the more qualified and experienced the appraiser must be. Examples of unique (special purpose) properties include: landfills, mineral rights, lakeshore, radio towers, and major shopping malls. If the real estate to be valued also includes a business owned by the same individual, the real estate appraiser and the business appraiser should work together to measure value.

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