Why Break Out the Values in a Going Concern Analysis?

I admit when I was a fresh young commercial appraiser, I never understood why we always broke out the values in a going concern analysis. However, over time I began to understand the importance of doing this for the reader. Here are just a few examples:

Let’s explore the USPAP angle. USPAP Standard 1-2 says an appraiser must (c) “identify the type and definition of value” and (e,iii) “any personal property, trade fixtures, or intangible assets that are not real property but are included in the analysis.” Then in Standard 1-4 it says an appraiser must (g) “analyze all information necessary when “personal property, trade fixtures or intangible assets are included in the appraisal, and the appraiser must analyze the effect on value of such non-real property assets.” Clearly, if you write an appraisal report, then you must break out the values for the reader.

Secondarily, an appraisal is used for many different purposes. Sometimes, the report is used to set replacement costs for insurance, determine the collateral for a loan, or calculate broker commissions. In each of these cases, it is imperative for the value of the real property (the land and building(s) to be listed separately. From my experience, a real estate commercial loan from a bank will be based on the real property value, not the market value of the going concern. In some instances, the borrower takes a personal loan for FF&E separate from the main financing.

These are just a few of the examples of why appraisers must break out the values in a going concern analysis. If you want to learn more, please contact me here.