Real estate appraisers can see, touch, and measure both their subject property and those comparable properties used to determine market value.
An operating business consists of both tangible and intangible assets, and every single business is unique. To appraise a coffee shop (not the building, the operation run out of the building), a business appraiser may look at transactions of other coffee shops; however, not all of them are a Starbucks located on a busy corner in downtown Seattle Washington.
The basic formula for valuing a business comes down to income divided by risk. It is elementary math; however, determining the variables themselves can be difficult. In fact, the Internal Revenue Service’ Revenue Ruling 59-60 states that determining the risk rate is one of the most challenging aspects of private business appraisal.
We can teach students how to calculate and support their conclusions. An appraiser needs to apply both common sense and judgment to data analytics to arrive at a value conclusion that makes sense.