What Formal Valuation Entails

The work of an appraisal board is one that requires long periods of having their heads down as they analyze statistics, databases and doing math. It requires diligence and patience and most do a great job at that. A business valuation, for example, yields a lot of valuable information. Some of this includes identifying the appraised fair market value the business holds, the actual selling price after business marketing, the estimated value from an intermediary and the book value of the business. In order to offer the correct value however, certain requirements need to be put in place.

One is that an appraisal board should not be biased. Some boards will try to give a high value to a property owner in order to have him or her sign up with the brokerage firm doing the appraising. Do not be fooled by the beautiful binders and color graphs. An unbiased valuation can only come from an unbiased appraisal board. Another thing to remember is that markets sometimes change. When the valuation approach does not reflect this change, then the real value of the business or property is lost. One of the dirty secrets of the valuation world that an appraisal board may not reveal is the worth of the data used in the valuation. In most cases, the combined data may result in a final valuation that is numbers away from the true market value. This is because done deal data gathered may not have put into consideration such things as debt assumption by the buyers during a sale among other things.

Since an appraisal board will use the market approach that assumes that financial history of a company predicts its future, this approach is uncertain and volatile, especially in the current market and will thus not be a true reflection of the company. Large companies on the other hand, use the income approach where the future cash flows of the company are used to calculate its present value. This however, may be a problem to a potential buyer who may not have the same faith in an appraisers estimate. On the other hand, an appraisal board helps in assessing the property tax of the property or business, aids in a settlement and helps to calculate adequate collateral that will aid in mortgages. A board can comprise of appraisers and assessors working together compiling detailed reports that help in valuations. Clearly, with many market forces at work, you need valuations to determine essential elements about your business or property.