How Does the Push for Ethics and Accuracy Affect Valuations and Appraisals?

By Leslie H. Miles Jr.

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JUNE 2005 - Despite the emphasis on ethics and accuracy in the current business environment, opportunities for creativity and artistry remain when it comes to valuations and appraisals. Despite increasing demands for standardization, valuation remains more an art than a science. For example, artistry requires using new technology, such as digital dictation that allows valuators to get through a plant in less time than previously required. Other technology allows for gathering more data, such as high-quality digital pictures. In addition to demonstrating a certain level of artistry, such technological developments also increase accuracy. Wireless technology enables a valuator or appraiser to begin research even before returning to the office.

Technology has also made appraisers and valuators less reliant on databases. For example, before the advent of computer software like Microsoft Excel, appraisers and valuators had to write multicategory programs. Likewise, the quality of market analysis research continues to improve because enormous amounts of data are now available online.

Available Standards

The Uniform Standards of Professional Appraisal Practice (USPAP) are the generally accepted standards for professional appraisal practice in North America. While USPAP attempts to provide a standardized framework for appraisal, how an appraiser interprets a case in light of the standards remains variable. Following USPAP does not guarantee that different appraisers will no longer arrive at very different values, because it allows for a wide range of definitions and interpretations. Moreover, a litigious environment often makes for an unreasonable need to address every incidental. An appraiser may think she has met USPAP, qualifying each and every point, but a plaintiff’s lawyer may pick apart her work by interpreting terms like “market” and “liquidation” differently. Or, a company using its own appraiser could come up with a much higher number than possible through only an auction sale.

For many people, the word “appraisal” is very rigid and often without qualification, whereas a written appraisal report itself may be qualified. For example, an accountant asks an appraiser for a desktop opinion of what the equipment is worth in a given company, based on a number of assumptions provided by the accountant. This creates a dilemma for the appraiser because not cooperating can diminish opportunities for future business. If the appraiser does give an ad hoc opinion, however, he puts himself in the same liability position as if he had done a formal study, including inspections.

An appraiser’s philosophy or approach to an assignment can be particularly important when the assignment involves valuing underlying assets. Without prior clarification of definitions and interpretations, the outcomes of an appraisal may not match expectations.


Leslie H. Miles Jr., ASA, CEA, is CEO of MB Valuation Services, Inc. (www.mbval.com).

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



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