Terrel Once Said

[Terrel L. Shields]

You forget the example of a car wash tunnel. Remove the FF&E and you have a useless elongated tube.

Same problem in poultry, 50% equipment, no equipment, and you have a barn that holds about 500 round bales.

 

[Gobears81]

If I have a way to measure BEV coupled with knowing RE. Finding FF&E value is simply a matter of subtraction. Further, and most important, it not only finds unknown values, it supports the division of components (the Holly Grail) of symbiotic property appraisers.

Stephen

I am also looking forward to your book. It is amazing what disagreement the methodology of going concern appraisals trigger: do those that solely do business valuation (but not real estate appraisers) disagree on the fundamentals this much also? I'm thinking no, although the allocation of partial assets seems to be as big of an issue as any, while a business appraiser may have the luxury of assigning fixed values to different components?

I have questioned multiple posters in this thread and apologize if it comes across the wrong way, but am doing so to better understand multiple viewpoints, rather than to be disagreeable. Plus, if you are writing a book on the subject, it is quite possible that this question will be raised either prior to or after publishing. To touch on your prior post, if MVTAB (or MVTI as you quoted) would be a given but FFE is the residual, it appears that BEV takes precedent over FFE in the priority of payments model. Take two examples:

Depreciated cost of real property: $550,000 (including EI)
Depreciated cost of personal property: $200,000 (not including EI)
MVTAB: $1,000,000

I am not sure what model you are using to determine BEV, but the priority of payments model suggests that $450,000 remains for either FFE or intangible assets after deducting real property value from MVTAB. Say that BEV is determined to be between $200,000 and $250,000, that would imply a residual FFE value that is also between $200,000 and $250,000. There might be some minor disagreements about inclusion of EI in FFE, but regardless, the variance is 5% of the total, so there do not appear to be any fundamental issues here.

Now, say that MVTAB is determined to be $900,000, yet BEV (not being the residual) is still $200,000 - $250,000, which would leave a residual FFE of $100,000 - $150,000. If adequate return is not given to FFE, how can an intangible value be so large? I come from a frame of logic that intangible assets, while very real, nonetheless could vaporize to 0 overnight, while FFE could at least return salvage value in most cases. Conversely, if MVTAB is $1,200,000 but BEV is $200,000 - $250,000, FFE being the residual at $400,000 - $450,000 clearly seems out of line. Just wanted to see your thoughts on this example.

 

[Eli]

It's the difference between proposed construction or new construction and the sales and rent comps and personal interviews that deserves interest. I can see Stephen's approach as an indicator. But the others are indicators too. I like the cost approach as an indicator.

Going concern is in the mix most likely. So the interests being valued is crucial. And they could vary significantly on proposed construction versus an established enterprise.

That's where valuing the going concern has protection.