Beware: High rates of customization will not always pay off in terms of valuation
Recently a banking client contacted Loeb Appraisal in need of valuation for a newly installed computerized conveyor system. They required an opinion of value to include both a Fair Market Value In Place definition, as well as, a Forced Liquidation Value definition. This prompted a lengthy conversation and discovery period as the overall costs of the system was $4,000,000, but there was no breakdown from the lender's client the document hard costs (the actual cost of the conveyor system) versus the soft costs (labor, installation, and programming).
This scenario presents a unique situation wherein there will be a large differential of values between the FMV IP definition of value and the FLV definition of value. Opinions of value under Fair Market Value In Place for these types of scenarios are typically very straight forward. The actual total cost for the recently installed system is a known value. However, the Forced Liquidation Value is quite a bit different. The soft costs play a large factor in the final valuation as these unrecoverable costs cannot be incorporated into a Forced Liquidation analysis. In Place, the values are retained, but under the Forced Liquidation Value scenario, they will not.
The result of this engagement was an opinion of FLV being merely 10% of the overall cost. From the FLV perspective, both our banking client and their borrower agreed with our analysis. The time factor that is inherent with the definition of FLV is critical to keep in mind in these scenarios. What are the hard and soft costs, what the value is on the books, what the current value of the assets are – these factors impact the analysis and the final opinion of value.
Our day-to-day involvement in the marketplace is critical when it comes to true asset valuations. With Loeb as an active participant in the market from multiple disciplines, our appraisals are based on actual transactions of buying, selling, financing, and auctioning industrial assets. We apply real world analysis to our approach.
Recently a banking client contacted Loeb Appraisal in need of valuation for a newly installed computerized conveyor system. They required an opinion of value to include both a Fair Market Value In Place definition, as well as, a Forced Liquidation Value definition. This prompted a lengthy conversation and discovery period as the overall costs of the system was $4,000,000, but there was no breakdown from the lender's client the document hard costs (the actual cost of the conveyor system) versus the soft costs (labor, installation, and programming).
This scenario presents a unique situation wherein there will be a large differential of values between the FMV IP definition of value and the FLV definition of value. Opinions of value under Fair Market Value In Place for these types of scenarios are typically very straight forward. The actual total cost for the recently installed system is a known value. However, the Forced Liquidation Value is quite a bit different. The soft costs play a large factor in the final valuation as these unrecoverable costs cannot be incorporated into a Forced Liquidation analysis. In Place, the values are retained, but under the Forced Liquidation Value scenario, they will not.
The result of this engagement was an opinion of FLV being merely 10% of the overall cost. From the FLV perspective, both our banking client and their borrower agreed with our analysis. The time factor that is inherent with the definition of FLV is critical to keep in mind in these scenarios. What are the hard and soft costs, what the value is on the books, what the current value of the assets are – these factors impact the analysis and the final opinion of value.
Our day-to-day involvement in the marketplace is critical when it comes to true asset valuations. With Loeb as an active participant in the market from multiple disciplines, our appraisals are based on actual transactions of buying, selling, financing, and auctioning industrial assets. We apply real world analysis to our approach.
