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How is personal property valued?

STEP #1: THE APPRAISER MUST DEVELOP A CLEAR AND COMPLETE UNDERSTANDING OF THE APPRAISAL PROBLEM.

This is achieved by identifying the property to be appraised, determining the purpose of the appraisal (ex. Estimating value for equitable distribution), establishing the type of value to be estimated, identifying ownership, and the date of the value estimate.

STEP #2: THE APPRAISER MUST PLAN THE APPRAISAL

The extent to which data is collected, confirmed and analyzed is previewed so the final value estimate is consistent with and addresses the appraisal problem.

STEP #3: IDENTIFICATION OF THE SUBJECT PROPERTY

The principles of contribution, identification and qualitative analysis are employed by the appraiser to distinguish common from rare qualities of properties.

Principal of Identification - If the subject property has the same identifying characteristics as a genuine article has, then the subject is assumed to be genuine. Everything that is authentic has certain characteristics that are the same as all other genuine things that are in the same class.

Principal of Contribution - The value of component parts of the subject property is directly related to how their value contributes to the value of the property in total or if a part is not present, how much it reduces total value.

Principal of Qualitative Analysis - If an appraiser is giving an opinion as to the quality or the artistic merit of the subject property, he/she then must do so by comparing or ranking the subject with similar property.

STEP #4: COMPARATIVE DATE IS COLLECTED AND ANALYZED.

Information regarding current market conditions and fact and information regarding similar property is gathered, analyzed and interpreted. It is upon this information that the appraiser will base his or her opinions. It is very important that the appraiser bases his or her opinions upon market derived information.

STEP #5: APPROPRIATE APPRAISAL METHODS ARE USED TO VALUE THE PERSONAL PROPERTY.

Cost Approach:

This approach is based on the theory that a given buyer will base the worth of a property on the assumption that he/she would not pay more for a property than it would cost to replace the property with property of equal utility or desirability.

Market Comparison Approach:

The most common method used to estimate the market value of personal properties is the Market Comparison Approach. The major premise of the Market Comparison Approach is that the market value of a property is directly related to the prices of comparable, and competitive properties. In this approach, the appraiser surveys and researches the market for recent sales of properties that are very similar to the property being appraised. The appraiser then makes adjustments to the comparables to reflect any differences between the property being appraised and the comparables that would have an effect on market value. Once the adjustments are made, the appraiser analyzes the adjusted values for each comparable, and then determines the value of the property being appraised.

Revenue Approach:

The Revenue or Income Approach is centered in the theory that income-producing property is usually purchased for investment purposes, and from an investor’s point of view earning potential is the critical factor affecting the value of the property being appraised. An investor who purchases income-producing property is essentially trading present dollars for the right to receive future dollars. This approach to valuation utilizes different techniques and mathematical calculations that an appraiser would use to analyze a property’s ability to produce income. The annual income and the expected reversionary value (value of the property when it is sold after a period of time) are converted into a value estimate through a process called capitalization.

STEP #6: THE THREE APPROACHES TO VALUE ARE RECONCILED INTO A FINAL VALUE ESTIMATE.

In order for the appraiser to form a defensible conclusion regarding the final value, the three approaches to value are analyzed based upon the following criteria:

1. Appropriateness: The appraiser determines how important each approach to value is with regards to the use and purpose of the appraisal in question.

2. Accuracy: The appraiser ranks the three approaches to value based upon his level of confidence in the credibility of the data used in each approach and, thus, the conclusion as to value drawn from each approach.

3. Quantity: The appraiser analyzes the amount of data collected and used to support each conclusion. Based upon this analysis, the appraiser forms an opinion as a single dollar value (sometimes a range into which the value is expected to fall) for the property being appraised.