One of the most important questions for an appraisal is what value definition(s) to use. There are several standard definitions, but any definition can be used as long as it can produce appropriate and credible results. Equipment owners usually want the definition to be used with the highest value and while banks and lenders want the value with a middle or low range of value in case the customer defaults. And while the appraiser is not an advocate for either side or for a high or low value, he or she is bound by the value definition chosen.
High Values Definitions- the following definitions usually produce the highest values
- Fair Market Value in Continued Use
- Fair Market Value - Installed
- Fair Market Value - Removed
- Replacement Cost New
- Reproduction Cost
Mid-Range Values - the following definitions usually produce a mid-range value
- Orderly Liquidation Value
- Orderly Liquidation Value In Place
- Replacement Cost New Depreciated
Low Values - the following definitions usually produce the lowest values
- Forced Liquidation Value
- Auction Value
- Salvage Value
- Scrap Value
These are not absolutes and the value definition depends on the scope of the project. An appraisal can include more than one of these definitions, which can supply both higher and lower values.