2011
the same amount of work. But depending on the context for which
the appraisal is being utilized, presentation can be important. For
example, in litigation, some attorneys may want a Self-Contained
report, believing it to be impressive through its exhaustiveness,
while others may believe a Summary report is more appropriate to
minimize unnecessary questions on matters with little relevance
during cross examination.
confirm the accuracy of data, but it will also allow the appraiser to
exposure time for the property. Would you please discuss how
it is an arms-length transaction.
particular transactions?
be made.
be reviewed?
the correct market for the property? For this situation, think of the
examined?
indications of value.
not be true. The analysis of highest and best use should look at the
property twofold. First, what would be the highest and best use if
2011
amount, and we can infer a value for the property in question from
that sale. Is this approach ever not used? And if so, why?
any person outside of the real state profession, is simply the most
JWV: The main reason this approach may not be utilized is that
there is insufficient applicable data. There may be some markets
example for which there simply are not any comparable sales. The
replacement tenant may cause the owner and the real estate
appraiser to assess whether or not the property should continue
such as overall property size and age, the legal rights conveyed,
etc., but it also has to do with information about the pricing. Has
unusual or typical?
the approach may be the most relevant and possibly the only
election to use the value six months after the date of death may
to a valuation date.
These properties, which may have been built for a very specific
manufacturing process or other need, do not sell very often, so
there is limited data outside of a cost approach. It will always
depend on the particular circumstance, but without sufficient
market data to apply a Sales Comparison or Income Capitalization
SRR Journal: Can you please describe in general terms the steps
but not necessarily for any given market or asset class. In general,
JWV: In very general terms, starting with the value of the land as
if vacant, the cost to replace or reproduce the facility is added.
A good question to ask the appraiser is how they derived these
2011
appropriate?
JWV: For the most part, whenever there is sufficient income data
is employed.
time utilized.
one versus the other? And how often, if at all, should a reviewer
sources of capital. The analysis looks at both the cost of debt and
fully leased up yet, etc., then cash flows will fluctuate. In these
situations, using a discounted cash flow methodology may allow
for better flexibility in predicting cash flows and ascertaining the
JWV: No, they are different, but they share a key attribute.
Theoretically, the discount rate is the return on an investment
valuation impact.
used, they follow a basic format: estimate future cash flows and
convert those cash flows into a present value equivalent. What are
methodology employed?
without consistency?
taxes, etc. So the terms and conditions of leases, both current and
prospective, are a major assumption. Subtracting expenses from
2011
JWV: All things being equal, you would like to see them be within
a reasonable range of each other. If they are not, the first course of
should receive the most weight, which one is the best indication?
are the relative qualities and the quantities of the data available
jvansanten@srr.com.
for each method? If you have a lot of great sales, then a sales
comparison approach could be a very powerful, reliable approach.
Second, one should always keep in mind how an investor will look
at the property. If cash flow is the primary driver, then the income
capitalization approach may be most reliable. A lot of this goes
back to highest and best use.
SRR Journal: Do you have any concluding comments?
JWV: I encourage all attorneys to look beyond the Pretty Report
and take a closer look at the underlying analysis. Whether you
are getting ready to cross-examine a witness or trying to get
comfortable with your own expert, taking a critical look at the
appraisal can make or break your case.
2011