Price vs. Value in Real Estate Valuations and Appraisals

In real estate "Price" is the amount a purchaser agrees to pay and a seller agrees to accept under the specific circumstances surrounding their transaction. Sometimes the price is reflective of "Value" as determined by an appraiser/appraisal but sometimes it can be substantially different depending on the circumstances of a specific transaction. For instance, if a seller offers financing at attractive terms to entice the buyer to purchase at a price different than most other potential buyers may pay under a normal financing arrangement, than that price has been affected and would need to be quantified and adjusted to reflect the value of the property/transaction. In essence, in the above described situation, the favorable financing led to an increase in the purchase price and is not considered typical of the market. This is just one brief example of how price and value can differ.

Appraisers spend lots of time researching transactions and figuring out how price was determined and how it relates to determining an opinion of value. An appraiser typically tries to mirror the market when determining an opinion of value for a property. Although many variations of the definition of value exists, a very brief description of value can be summed up as: value should be a reflection of the collective market as to how it relates to a specific property including consideration of a variety of market based evidence/data that reflects the combined/collective value judgement of market participants (buyers, sellers, tenants, owners, brokers, etc.). So an opinion of value usually results from the culmination of analyzing a number factors, including: comparable sales, rental rates, land sales, construction costs, current economic conditions, economic forecast, available properties and listings (inventory), various other supply and demand factors, etc.

For more information about real estate pricing, value, or the appraisal/valuation process, please visit our website and contact us with your questions.

Mike Cliggitt, MAI, MRICS
Cliggitt, Valuation, Inc.
863-661-1165
www.cliggitt.com

Real Estate Appraisals for Estate Planning

There are many reasons to get an appraisal of commercial property, including when planning to make a purchase, planning to sell, obtaining financing, estate planning, gifting property to heirs or charity, partnership transfers, divorce settlement, foreclosure, bankruptcy, obtaining appropriate insurance coverage, financial reporting requirements, investment analysis, just to name of few. In all of these situations, obtaining an accurate value is paramount and should be entrusted only to a highly skilled appraisal professional.

A spike in appraisal activity occurred around the last quarter of 2012 much of which was for the estate planning and/or property gifting scenarios mentioned above. The main reason behind this flurry of appraisal activity had to do with the fiscal cliff and the looming adjustment to the estate tax laws.  Many property owners needed current valuations of their assets to help plan and make appropriate arrangements in light of the potential change in the laws and tax rates that were being anticipated. Although the final result of the fiscal cliff negotiations resulted in very limited changes to the estate tax, having a current accurate appraisal of property for long-term family estate planning is prudent a decision.

Appraisals can be utilized in estate planning a number of different ways. Many times intrafamily transfers of either minority or majority ownership in property is necessary and knowing the current market value helps everyone involved feel comfortable that the value associated with the transfer is accurate. Additionally, a variety of tax strategies and planning can be accomplished in advance of major family changes and having an up to date appraisal when plans are being put in place helps in the planning and structuring process. Gifting property to heirs and/or charitable organizations is another instance when having a qualified appraiser perform a current market appraisal of your property is a good idea. 

Anytime an appraisal is needed by a property owner or family estate, only a highly qualified appraiser should be hired, but it should also be noted that for many issues surrounding estate planning, gifting, charitable donation, and any number of other reasons that the IRS requires an appraisal, the appraiser selected must meet IRS requirements as a "Qualified Appraiser" (See IRS Publication 561 for complete details). A brief description from the IRS website states that a Qualified Appraiser is an individual who meets all the following requirements:

The individual either:  

1. 1. Has earned an appraisal designation from a recognized professional appraiser organization for demonstrated competency in valuing the type of property being appraised, or
   2. Has met certain minimum education and experience requirements. For real property, the appraiser must be licensed or certified for the type of property being appraised in the state in which the property is located. For property other than real property, the appraiser must have successfully completed college or professional-level coursework relevant to the property being valued, must have at least 2 years of experience in the trade or business of buying, selling, or valuing the type of property being valued, and must fully describe in the appraisal his or her qualifying education and experience.                              
2. The individual regularly prepares appraisals for which he or she is paid.
3. The individual demonstrates verifiable education and experience in valuing the type of property being appraised. To do this, the appraiser can make a declaration in the appraisal that, because of his or her background, experience, education, and membership in professional associations, he or she is qualified to make appraisals of the type of property being valued.
4. The individual has not been prohibited from practicing before the IRS under section 330(c) of title 31 of the United States Code at any time during the 3-year period ending on the date of the appraisal.
5. The individual is not an excluded individual.

For the highest qualified appraisers select a MAI Designated Member of the Appraisal Institute.



Mike Cliggitt, MAI, MRICS
Cliggitt Valuation, Inc.
Commercial Real Estate Analysts and Advisors
Central Florida Real Estate Valuation Firm
Available in Lakeland, Auburndale, Lake Alfred, Winter Haven and numerous other cities
863-661-1165
www.cliggitt.com

Mike Cliggitt, MAI Awarded MRICS Real Estate Designation

Mike Cliggitt, MAI, commercial real estate appraiser, real estate broker, and property tax appeal consultant at Cliggitt Valuation, Inc. has been awarded the prestigious internationally recognized MRICS professional designation.

Mike Cliggitt, MAI, MRICS - Link to Full Web Page Press Release


Mike Cliggitt, MAI, MRICS - Link to Full PDF Press Release
For additional information please visit www.cliggitt.com.