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Appraisal Principles USPAP Perspective. Determining Fair Market Value Appraisal is an estimate of fair market value Fair market value is known with certainty.

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Presentation on theme: "Appraisal Principles USPAP Perspective. Determining Fair Market Value Appraisal is an estimate of fair market value Fair market value is known with certainty."— Presentation transcript:

1 Appraisal Principles USPAP Perspective

2 Determining Fair Market Value Appraisal is an estimate of fair market value Fair market value is known with certainty only at time of sale Fair market value is known with certainty only at time of sale Appraisal is an art However, the science of appraisal is its methodology for turning subjective reasoning into objective reasoning which minimizes valuation differences among professional appraisers

3 Definition of Fair Market Value The price at which property would change hands between a willing buyer and a willing seller, neither being under any compulsion to buy or sell and both having reasonable knowledge of relevant facts. Internal Revenue Section 1.170A-1(c)(2) Internal Revenue Section 1.170A-1(c)(2)

4 Methods for Determining Fair Market Value Sales Comparison Approach Income (Net Present Value) Approach Cost-of-Replacement (Production) Approach

5 Sales Comparison Approach Similar or comparable properties that have been recently sold in an arms-length- transaction and in a relevant market give an indication of probable value of the subject property to which they are being compared when proper adjustments are made that minimize the differences in characteristics between the subject property and comparable properties.

6 Sales Comparison Approach Subject Property: The property for which value is being determined Comparable Property: Has similar characteristics of the subject property for which a transaction (sale) price is known Also, similar use Also, similar use Registered beef cow used to produce feeder steers should be valued as brood cow Registered beef cow used to produce feeder steers should be valued as brood cow 4-H club calve & lamb sales and 4-H fair sales are not the same as commercial sales 4-H club calve & lamb sales and 4-H fair sales are not the same as commercial sales Being able to adequately judge the quality of the subject property and find good comparables is at the heart of the sales comparison approach

7 Sales Comparison Approach Arms-Length-Transaction: A sale conducted in an open market between a willing buyer and a willing seller and both have reasonable knowledge about the property Dont use quick forced sale data Dont use quick forced sale data Advertized liquidation sales are OK Advertized liquidation sales are OK

8 Sales Comparison Approach Relevant Market: The market or place where the subject property is most commonly sold at the level of value being sought. High value replacement breeding stock are often sold in special disposal sales or specialized breeding sales, e.g. High value replacement breeding stock are often sold in special disposal sales or specialized breeding sales, e.g. Whitetail Extravaganza Top 30 Breeder Sale & Show Whitetail Extravaganza Top 30 Breeder Sale & Show Pride of Washington and Best of the Northwest (dairy) Pride of Washington and Best of the Northwest (dairy) If an owner is claiming high value, then should be able to document previous sales at an elite breeding sale If an owner is claiming high value, then should be able to document previous sales at an elite breeding sale Being registered doesnt mean superior genetics; it just means pure genetics, can have poor pure genetics Being registered doesnt mean superior genetics; it just means pure genetics, can have poor pure genetics Being breed registered is not sufficient documentation for higher prices, it must be demonstrated in actual sale data or documentation of breeding merchandising Being breed registered is not sufficient documentation for higher prices, it must be demonstrated in actual sale data or documentation of breeding merchandising

9 Sales Comparison Approach Adjustment-in-Value: The characteristics of comparables will not always be the same as the subject property and consequently the value of the comparables are adjusted so that the comparables have the same characteristics as the subject property. Making proper adjustments is also at the heart of generating good appraisal value Making proper adjustments is also at the heart of generating good appraisal value

10 Income Approach The Income Approach estimates the present (discounted) worth of anticipated future stream of net income from owning income producing assets.

11 Income Approach Basic Methodology Determine retained earnings for each time period Determine retained earnings for each time period Retained Earnings = Gross Revenue – Operating Expenses – Depreciation – Income Taxes – Payments to Owners (Dividends) Retained Earnings = Gross Revenue – Operating Expenses – Depreciation – Income Taxes – Payments to Owners (Dividends) Generally involves developing enterprise budgets Generally involves developing enterprise budgets Determine number of years the asset will be productive Determine number of years the asset will be productive Select discount rate (cost of capital, i.e. interest rate) Select discount rate (cost of capital, i.e. interest rate) Value = (retained earnings t ) / (1 + i) t Value = (retained earnings t ) / (1 + i) t

12 Income Approach Appropriate Use General General Businesses, real estate with rental leases, financial investments Businesses, real estate with rental leases, financial investments Agriculture Agriculture Breeding animals Breeding animals Method used for poultry calculators Method used for poultry calculators

13 Cost-of-Replacement Approach Valuation with the Cost Approach equals the cost of replacing a subject property with an exact replica, or with an acceptable, similar, new or used property.

14 Cost-of-Replacement Approach Uses in Agricultural Appraisals Replacement stock Replacement stock Value equals cost associated with raising the animal Value equals cost associated with raising the animal Can be combined with Sales Comparison Approach Can be combined with Sales Comparison Approach value of young dairy replacement heifer equals the market price of 2 year old springer heifer minus the costs associated with raising the heifer from current age to a 2 year old springer value of young dairy replacement heifer equals the market price of 2 year old springer heifer minus the costs associated with raising the heifer from current age to a 2 year old springer

15 Cost-of-Replacement Approach Uses in Agricultural Appraisals Buildings, fences Buildings, fences Sometimes sheds or chicken coops are destroyed as part of cleaning and disinfection Sometimes sheds or chicken coops are destroyed as part of cleaning and disinfection Value can be cost of replacing destroyed item adjusted for remaining useful age Value can be cost of replacing destroyed item adjusted for remaining useful age Assume backyard chicken coop has 10 year economic life and one destroyed has 2 years left, value would be two-tenths of cost of replacement Assume backyard chicken coop has 10 year economic life and one destroyed has 2 years left, value would be two-tenths of cost of replacement

16 Sales Comparison Approach in Detail

17 Sales Comparison Approach Know the subject property What are the key characteristics that will be used to determine value, i.e. adjust comparables What are the key characteristics that will be used to determine value, i.e. adjust comparables Breed, sex, age, body condition, productivity Breed, sex, age, body condition, productivity Maybe limited by what is reported in relevant markets Maybe limited by what is reported in relevant markets Find relevant markets for comparables Market in which the subject property would normally sell Market in which the subject property would normally sell Maybe located in another state Maybe located in another state If using an exclusive (elite) breeding sale as relevant market, then must document that the animal has the quality characteristics to be sold at such a market If using an exclusive (elite) breeding sale as relevant market, then must document that the animal has the quality characteristics to be sold at such a market

18 Sales Comparison Approach Have multiple comparables Prefer to have at least 3 Prefer to have at least 3 Make adjustments of comparables to match subject property ALWAYS adjust comparables to subject ALWAYS adjust comparables to subject If comparable is better than subject, then subtract value If comparable is better than subject, then subtract value If poorer than subject add value If poorer than subject add value Make adjustments to each comparable first, then average the comparables Make adjustments to each comparable first, then average the comparables If a comparable appears to be an outlier, then you may exclude it, especially if it is more different from the subject property than the other comparables If a comparable appears to be an outlier, then you may exclude it, especially if it is more different from the subject property than the other comparables

19 Sales Comparison Approach Adjustment Example (with made up numbers) Subject Animal Subject Animal Angus Beef Cow, 4 years old, 6 months pregnant, 1200 pounds Angus Beef Cow, 4 years old, 6 months pregnant, 1200 pounds Comparable Animals Comparable Animals Angus Beef Cow, 5 years old, 5 months pregnant, 1100 pounds, $700 selling price Angus Beef Cow, 5 years old, 5 months pregnant, 1100 pounds, $700 selling price Herford Beef Cow, 3 years old, 7 months pregnant, 1100 pounds, $750 selling price Herford Beef Cow, 3 years old, 7 months pregnant, 1100 pounds, $750 selling price Angus-Herford cross Cow, 2 years old, 3 months pregnant, 1000 pounds, $750 Angus-Herford cross Cow, 2 years old, 3 months pregnant, 1000 pounds, $750 Angus Beef Cow, 9 years old, 4 months pregnant, 1400 pounds, $600 selling price Angus Beef Cow, 9 years old, 4 months pregnant, 1400 pounds, $600 selling price

20 Appraisal Adjustment Table BreedAgePregnancyWeight Sales Price ($/head) SubjectAngus 4 yrs 6 mo 1200 lbs Comp 1 Angus 5 yrs 5 mo 1100 lbs $700 Comp 2 Herford 3 yrs 7 mo 1100 lbs $750 Comp 3 A – H x 2 yrs 3 mo 1000 lbs $750 Comp 4 Angus 9 yrs 4 mo 1400 lbs $600

21 Adjustment for Breed Can be difficult, try to find market value for the breed in question, especially if the herd is being used to produce replacement stock Can account for breed size differential through weight adjustment & milk production (dairy) Most popular cattle breeds: beef – Angus, dairy – Holstein beef – Angus, dairy – Holstein In swine and poultry have specialized composite breeds from genetic breeding companies Foundation breeding stock for these companies can be very valuable Traditional breeds are becoming heirloom breeds being raised by serious hobbyist Traditional breeds are becoming heirloom breeds being raised by serious hobbyist Body confirmation becomes very important in value Body confirmation becomes very important in value

22 Adjustment for Age As breeding & milk animals age, they decline in value (depreciate) as offspring are born and milk is produced The average Holstein upon the birth of her first calf has a remaining life expectancy of less than three full lactations (based upon DHIA data) (based upon DHIA data)

23 Adjustment for Age Age adjustment for our beef cow example Method 1 Method 1 Heiferettes: $65/cwt; cull cows: $45/cwt Heiferettes: $65/cwt; cull cows: $45/cwt Assume 1000 lb animal and 8 calvings Assume 1000 lb animal and 8 calvings [10 cwt x ($65/cwt - $45/cwt)] / 8 = $25 per year [10 cwt x ($65/cwt - $45/cwt)] / 8 = $25 per year Method 2 Method 2 2 yr old bred heifer: $1200; 8 yr old bred cow: $600 2 yr old bred heifer: $1200; 8 yr old bred cow: $600 ($ $600) / (8 yrs – 2 yrs) = $100 per year ($ $600) / (8 yrs – 2 yrs) = $100 per year Method 3 Method 3 Statistical analysis of USDA-AMS beef cows auction prices Statistical analysis of USDA-AMS beef cows auction prices Beef cows depreciate in value by approximately $30/year Beef cows depreciate in value by approximately $30/year Differences between the three methods demonstrate part of the art of appraisal Differences between the three methods demonstrate part of the art of appraisal

24 Adjustment for Pregnancy Status Most breeding animals are either pregnant or are nursing young (i.e. cow-calf pairs) Breeding animal that dont get pregnant are usually culled Breeding animal that dont get pregnant are usually culled Thus, breeding females are normally traded when they are pregnant (or cow- calf pairs) and consequently market prices for breeding females are for pregnant females Thus, breeding females are normally traded when they are pregnant (or cow- calf pairs) and consequently market prices for breeding females are for pregnant females Discount if not pregnant – not a premium for being pregnant

25 Adjustment for Pregnancy Status Pregnancy adjustment for our beef cow example Method 1 Method 1 70 lb $135/cwt x 95% chance of a live calf after 24 hours = $90 calf in the womb ÷ 9 months gestation = $10 per month pregnant 70 lb $135/cwt x 95% chance of a live calf after 24 hours = $90 calf in the womb ÷ 9 months gestation = $10 per month pregnant Method 2 Method 2 Cost of insemination plus variable (cash) cost associated with caring for the breeding animal Cost of insemination plus variable (cash) cost associated with caring for the breeding animal Method 3 Method 3 Statistical analysis of USD-AMS auction prices Statistical analysis of USD-AMS auction prices Approximately $20/month Approximately $20/month

26 Adjustment for Weight Weight Use relevant market prices for cull values of breeding animals Use relevant market prices for cull values of breeding animals USDA-NASS national cow price USDA-NASS national cow price Nov 08: $43.10/cwt Nov 08: $43.10/cwt Dec 08: $40.40/cwt Dec 08: $40.40/cwt Jan 09: $42.20/cwt Jan 09: $42.20/cwt Statistical analysis of USDA-AMS beef cow auction prices Statistical analysis of USDA-AMS beef cow auction prices Cows: approximately $43/cwt Cows: approximately $43/cwt Heifers: approximately $71/cwt Heifers: approximately $71/cwt $45/cwt for our beef cow example $45/cwt for our beef cow example

27 Adjustment for Breed Registration Being breed registered doesnt automatically add value Could increase value at little by the cost of registering due to owner prejudice Must have evidence of merchandizing breeding stock to have breeding premium If a herd or flock of registered animals is used primarily to produce meat animals or milk, then it is a commercial herd and the breeding stock is of commercial value If a herd or flock of registered animals is used primarily to produce meat animals or milk, then it is a commercial herd and the breeding stock is of commercial value Owner must provide documentation of additional value being realized for his/her animals Its performance, not pedigree that counts

28 Appraisal Adjustment Table AdjustmentBreed ($50 if not Angus)Age($25/yr)Pregnancy($10/mo)Weight($45/cwt) Sales Price ($/head) SubjectAngus 4 yrs 6 mo 1200 lbs Comp 1 Angus$0 5 yrs +$25 5 mo +$ lbs +$45$700+$80$780 Comp 2 Herford+$50 3 yrs -$25 7 mo -$ lbs +$45$750+$60$810 Comp 3 A – H x $0 2 yrs -$50 3 mo +$ lbs +$90$750+$70$820 Comp 4 Angus$0 9 yrs +$125 4 mo +$ lbs -$90$600+$55$655

29 Appraisal Adjustment Table AdjustmentBreed ($50 if not Angus)Age($25/yr)Pregnancy($10/mo)Weight($45/cwt)AdjustedValue($/head) SubjectAngus 4 yrs 6 mo 1200 lbs Comp 1 Angus 5 yrs 5 mo 1100 lbs $780 Comp 2 Herford 3 yrs 7 mo 1100 lbs $810 Comp 3 A – H x 2 yrs 3 mo 1000 lbs $820 Comp 4 Angus 9 yrs 4 mo 1400 lbs $655 Subject value: ($780 + $810 + $820 + $655) ÷ 4 = $ $750 Subject value: ($780 + $810 + $820) ÷ 3 = $ $800 If no breed adjustment: Subject value: ($780 + $760 + $820) ÷ 3 = $ $800

30 Additional Appraisal Exercises

31 Summary Sales Comparison Adjustments Adjustments are at the heart of any appraisal, must be done right Need data to determine & support adjustments Requires constant surveillance of the market and data collection efforts Questions?

32 Appraisal Principles APHIS Perspective

33 Animal Health Protection Act of 2002 …compensation shall be based on the fair market value, as determined by the Secretary, of the destroyed animal, article, facility, or means of conveyance.

34 Animal Health Protection Act of 2002 …the amount to be paid under this subsection shall be final and not subject to judicial review or review of longer than 60 days by any officer or employee of the Federal Government other than the Secretary or the designee of the Secretary.

35 Factors Affecting Fair Market Value Animal characteristics Breed, Age, Weight, Use Breed, Age, Weight, Use Animal Profitability Breeding, Milk, Egg Production Breeding, Milk, Egg Production Breeding, milk or egg producing animals depreciate with age Breeding, milk or egg producing animals depreciate with age

36 Factors Affecting Fair Market Value Health Status Free of disease, exposed to disease or infected with disease Free of disease, exposed to disease or infected with disease USDA assumes healthy animals, i.e. as if they are not diseased or exposed to the disease in question USDA assumes healthy animals, i.e. as if they are not diseased or exposed to the disease in question Thus, APHIS appraisal value may be greater than true fair market value Thus, APHIS appraisal value may be greater than true fair market value

37 Factors Affecting Fair Market Value What others are willing to pay Demand & supply situation Demand & supply situation Rare/unique breeds: valuable because few suppliers or worthless because nobody wants them. Rare/unique breeds: valuable because few suppliers or worthless because nobody wants them. Be careful of minor breed hype Be careful of minor breed hype Sometimes for minor breeds add a slight premium (or dont discount) to satisfy owner prejudice Sometimes for minor breeds add a slight premium (or dont discount) to satisfy owner prejudice Often expressed in auction markets Often expressed in auction markets

38 Factors Not Included in Fair Market Value The animals are family Family financial needs Bonus for cooperation Need appraisal objectivity Need appraisal objectivity Not allowed Not allowed Can lead to domino affect where future owners wont cooperate without bonus Can lead to domino affect where future owners wont cooperate without bonus

39 Modified Sales Comparison Approach Use of auction market reports and auctioneer (expert) opinion Are not true comparables and thus dont qualify for a true sales comparison approach Are not true comparables and thus dont qualify for a true sales comparison approach However, they provide useful information that can allow us to determine value However, they provide useful information that can allow us to determine value

40 Using Auction Market Reports to Determine Value Auction market reports often limited to summary information e.g. fresh Holstein cows e.g. fresh Holstein cows Sometimes will report very general body condition, e.g. good Sometimes will report very general body condition, e.g. good Usually dont report milk production Usually dont report milk production May not report how many were sold in any one category May not report how many were sold in any one category Sale of a few animals may not be representative of fair market value Sale of a few animals may not be representative of fair market value May not report average value for any category May not report average value for any category Range can be miss leading as an outlier can greatly widen the range Range can be miss leading as an outlier can greatly widen the range

41 Using Auction Market Reports to Determine Value Livestock producers claim that auctions under represent value as lower quality animals populate auction sales Somebody is purchasing these animals and taking them back to their operation Somebody is purchasing these animals and taking them back to their operation Auction Reports sometime dont report animals that sold at lower prices Auction Reports sometime dont report animals that sold at lower prices

42 Basing Appraisal Value on Auction Market Reports Reported prices will usually be a range of value If subject property matches up with reported quality characteristics, then select midpoint (50 th percentile or median) value If subject property matches up with reported quality characteristics, then select midpoint (50 th percentile or median) value Auction prices of fresh cows, years old: $ $2500 Auction prices of fresh cows, years old: $ $2500 Midpoint is $2000 Midpoint is $2000 Subject: 3 yr old fresh dairy cow with milk production near state average: value = $2000 Subject: 3 yr old fresh dairy cow with milk production near state average: value = $2000 If have data on each lot sold, then take average or if have an outlier use median (middle) value If have data on each lot sold, then take average or if have an outlier use median (middle) value If lots are of multiple animals then calculate a weighted average If lots are of multiple animals then calculate a weighted average Sum total sales value and divide by total number of animals Sum total sales value and divide by total number of animals

43 Basing Appraisal Value on Auction Market Reports If have prices from multiple auctions can Average their midpoints Average their midpoints $900 ($700 - $1100) + $1000 ($800 - $1200) + $1200 ($ $1400) + $900 ($600 - $1200) + $900 ($600 - $1200) = $4000 ÷ 4 = $1000 = $4000 ÷ 4 = $1000 Take the midpoint of highest minimum value and lowest maximum value Take the midpoint of highest minimum value and lowest maximum value ($ $1100) ÷ 2 = $1050 ($ $1100) ÷ 2 = $1050 MinimumValueMaximumValue Auction 1 $700$1100 Auction 2 $800$1200 Auction 3 $1000$1400 Auction 4 $600$1200

44 Basing Appraisal Value on Auction Market Reports When auctions list average value for top 1, top 5, top 10, top 50, top 100, etc. Can calculate average value for 2-5 top head, 6-10 top head, top head, top head, etc Can calculate average value for 2-5 top head, 6-10 top head, top head, top head, etc Example: Top, $1600; Top 5, $1500; Top 10, $1450 Example: Top, $1600; Top 5, $1500; Top 10, $1450 Determine total value for top 5, subtract value of top 1, divide by 4 (5 - 1) to obtain average value of top 2-5 head. Determine total value for top 5, subtract value of top 1, divide by 4 (5 - 1) to obtain average value of top 2-5 head. ($1500 x 5 - $1600) ÷ (5 -1) = $5900 ÷ 4 = $1475 ($1500 x 5 - $1600) ÷ (5 -1) = $5900 ÷ 4 = $1475 Determine total value for top 10, subtract total value for top 5, divide by 5 (10 - 5) to obtain average value of top 6-10 head Determine total value for top 10, subtract total value for top 5, divide by 5 (10 - 5) to obtain average value of top 6-10 head ($1450 x 10 - $1500 x 5) ÷ (10 -5) = $7000 ÷ 5 = $1400 ($1450 x 10 - $1500 x 5) ÷ (10 -5) = $7000 ÷ 5 = $1400 Repeat process Repeat process For average quality I use the average value for the bottom category as it generally has the most head and often there are other animals sold at a lower price that are not reported For average quality I use the average value for the bottom category as it generally has the most head and often there are other animals sold at a lower price that are not reported

45 Making Adjustments to Auction Market Reports Making adjustment for an unreported characteristic (e.g. milk production in dairy cows) What to do when subject animal doesnt match up to reported characteristics Example Example Auction prices of fresh cows, years old: $ $2500 Auction prices of fresh cows, years old: $ $2500 Subject cow 1: fresh cow 3 years old milking 3000 pounds above state average Subject cow 1: fresh cow 3 years old milking 3000 pounds above state average Subject cow 2: fresh cow 6 years old milking 3000 pounds above state average Subject cow 2: fresh cow 6 years old milking 3000 pounds above state average

46 Adjustments for Unreported Characteristics Assuming subject property matches up with reported quality characteristics, can move towards either the bottom or top of the reported price One option is to select the 25 th / 75 th percentile (midpoint between 50 th percentile and bottom/top) for poorer/better quality animals One option is to select the 25 th / 75 th percentile (midpoint between 50 th percentile and bottom/top) for poorer/better quality animals Midpoint (50 th percentile) of $ $2500 is $2000 Midpoint (50 th percentile) of $ $2500 is $ th percentile: midpoint between $1500 & $2000 or $ th percentile: midpoint between $1500 & $2000 or $ th percentile: midpoint between $2000 & $2500 or $ th percentile: midpoint between $2000 & $2500 or $2250 Subject dairy cow 1: $2250 Subject dairy cow 1: $2250 If extremely better/poorer, then could select top/bottom of price range If extremely better/poorer, then could select top/bottom of price range

47 Adjustments for Characteristics that Dont Match Market Reports Determine value of a base animal and then make adjustments based upon other information you have Subject cow 2: 6 yrs old, 3000 lbs above state milk average Subject cow 2: 6 yrs old, 3000 lbs above state milk average Base animal: select 75% percentile to account for superior milk production: $2250 Base animal: select 75% percentile to account for superior milk production: $2250 Based upon assumed previous analysis depreciation is $200 per year of age Based upon assumed previous analysis depreciation is $200 per year of age 6 yrs – 3 $200/yr = $900 adjustment 6 yrs – 3 $200/yr = $900 adjustment Appraisal value: $ $900 = $1350 Appraisal value: $ $900 = $1350 Remember: You can move within the price range to adjust for a characteristic not reported, but must make an adjustment for a characteristic that is different from what is reported

48 Obtaining Expert Opinion Describe the subject animal in detail Example: 3-4 year old Angus cow, commercial grade, confirmed 5-6 months pregnant, good body condition Example: 3-4 year old Angus cow, commercial grade, confirmed 5-6 months pregnant, good body condition Dont simply ask, What are beef cows selling for? Dont simply ask, What are beef cows selling for? Once a base animal has been describe, then can ask how age, weight, breed, body condition, breed registration, pregnancy status, etc impact value Once a base animal has been describe, then can ask how age, weight, breed, body condition, breed registration, pregnancy status, etc impact value

49 Reporting Expert Opinion Experts response will become part of the appraisal report, example: Joe Doe, Top Value Livestock Auction Market, October 9, 2008 Joe Doe, Top Value Livestock Auction Market, October 9, 2008 Values for bred Angus cow, 3-4 years of age, commercial grade, good body condition Values for bred Angus cow, 3-4 years of age, commercial grade, good body condition Young cows: $900 to $1300, very top quality $1500 Young cows: $900 to $1300, very top quality $1500 Sold mouth cows: $800 to $1000 Sold mouth cows: $800 to $1000 Broken mouth cows: $100 over cull value Broken mouth cows: $100 over cull value Cull price: $45 - $50 per cwt Cull price: $45 - $50 per cwt Registered: up to $100 extra Registered: up to $100 extra Fair body condition: discount $100 - $200 Fair body condition: discount $100 - $200 Poor body condition: $100 above cull value Poor body condition: $100 above cull value Other breeds: generally bring a little less Other breeds: generally bring a little less Market is generally down $100 to $200 due to poor pasture conditions / hay shortage resulting from summer drought Market is generally down $100 to $200 due to poor pasture conditions / hay shortage resulting from summer drought

50 Using Auction Reports & Expert Opinion Can combine information from both Start with expert opinion Start with expert opinion Generally a range of value Generally a range of value Use auction prices as supporting evidence and for adjustment to final appraisal value Use auction prices as supporting evidence and for adjustment to final appraisal value i.e. specific value within the expert opinion range i.e. specific value within the expert opinion range Remember to include copies of the auction reports as part of your appraisal report as well as the information gained from the expert

51 Appraising in Groups When appraising a herd one can appraise groups of animals as long as they have similar value Develop a few categories to place all the animals Develop a few categories to place all the animals e.g. for dairy cows have 4 levels of lactation and 3 levels of milk production to have 4x3 grid of values with a 13 th value for animals to be culled due to reproductive, body condition, mammary problems, poor production etc. e.g. for dairy cows have 4 levels of lactation and 3 levels of milk production to have 4x3 grid of values with a 13 th value for animals to be culled due to reproductive, body condition, mammary problems, poor production etc. Categories should be relevant and have reasonable percentage of the herd Categories should be relevant and have reasonable percentage of the herd e.g. in the above example may eliminate the low milk production category as such animals would culled by end of lactation e.g. in the above example may eliminate the low milk production category as such animals would culled by end of lactation

52 Appraising in Groups Develop a few categories to place all the animals Determine value for each category then place the animals into the categories Determine value for each category then place the animals into the categories Alternatively could have base animal with predetermined adjustments for a few key parameters Alternatively could have base animal with predetermined adjustments for a few key parameters e.g. base milk cow: 1 st lactation, milking 18,000 lbs, open & no breed registry with adjustments for higher lactation levels, milking above 21,000 lbs, above 24,000 lbs; pregnant; bred registered e.g. base milk cow: 1 st lactation, milking 18,000 lbs, open & no breed registry with adjustments for higher lactation levels, milking above 21,000 lbs, above 24,000 lbs; pregnant; bred registered Assumes adjustments are independent of one another Assumes adjustments are independent of one another Should there be a breed registration premium for an older animal? Should there be a breed registration premium for an older animal?

53 Accounting for Differences in Time Sometimes have very good price information, but it may be dated Indexing using an established price series can be an option for updating prices Indexing using an established price series can be an option for updating prices Example: Have November price information for Telemark cattle & subject cow would be worth $1000, however, it is now June Example: Have November price information for Telemark cattle & subject cow would be worth $1000, however, it is now June In November, Drovers reported average bred cow worth $700 and in June, $800 In November, Drovers reported average bred cow worth $700 and in June, $800 Indexing: (current series value / past series value) x value of interest Indexing: (current series value / past series value) x value of interest ($800/$700) x $1000 = $1143 $1150 ($800/$700) x $1000 = $1143 $1150 Major assumption: that subject animal has changed in value the same percentage as animals in the price series Major assumption: that subject animal has changed in value the same percentage as animals in the price series If true, then a viable option; if not then dont index If true, then a viable option; if not then dont index

54 Questions?


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