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Glossary
Appraisal: An unbiased and independent opinion of value. |
| Approaches to Value:
The three recognized approaches used in appraisal analysis. They are as
follows: |
- Cost Approach:
Calculation of value beginning with a determination of the replacement
cost of a new asset of the same or similar utility, followed by
deductions for all forms of depreciation to the subject asset
including; physical (age, condition), technological obsolescence and
economic obsolescence
- Income Approach: Capitalization of current
net income or projected net cash flow and discounts those at a
calculated rate to estimate current value. This is the least employed
approach to value in single asset appraisals of equipment.
- Sales Comparison or Market Approach:
Involves the collection of market sales data pertaining to the subject
assets being appraised in order to determine the desirability of the
assets through recent sales or offerings of similar assets currently
on the market in order to derive the most probable selling price for
the assets being appraised. In high tech technology, values change
rapidly and little market data may exist for certain assets.
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Concepts of Value: Appraisal assignments often
require more than one value. The appraiser, before beginning the
process will investigate the assignment thoroughly in order to arrive
at the concept that best suits the situation and purpose of the
appraisal assignment. Some of the most common values are as follows:
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Fair Market Value: The
estimated amount, expressed in terms of money, which may reasonably
be expected for a property in an exchange between willing buyer and
a willing seller, with equity to both, neither under any compulsion
to buy or sell, and both fully aware of all relevant facts, as of a
specific date.
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Fair Market Value In Place & In Use: Same as
the above but adds to it such costs as installation, transportation,
rigging, selling, expenses, commission and taxes etc.
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Forced Liquidation Value:
The estimated gross amount, expressed in terms of
money, that could typically 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.
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Orderly Liquidation Value:
The estimated gross amount, expressed in terms of
money, that could typically be realized from a liquidation sale,
given a reasonable period of time to find a purchaser(s), with the
seller being compelled to sell on an as-is, where-is basis, as of a
specific date.
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Residual Value: The projected value expected
by a lessor at the termination of a “fair market value” lease. This
value usually falls somewhere between the fair market value and its
orderly liquidation value and is based upon the lessor’s calculated
expectations of the willingness of the lessee to buy the equipment
at its fair market value. In the event the lessee elects to return
the equipment, the lessor is likely to dispose of the equipment at
its orderly liquidation value.
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