When the 2010 Interagency Appraisal and Evaluation Guidelines were printed in December of 2010 there were many new requirements and a restating of many old ones.
Section VIII Minimum Appraisal Standards at the top of Page 9 of 45 states:
Be based upon the definition of market value set forth in the appraisal regulation. Each appraisal must contain an estimate of market value, as defined by the Agencies’ appraisal regulations. The definition of market value assumes that the price is not affected by undue stimulus, which would allow the value of the real property to be increased by favorable financing or seller concessions. Value opinions such as “going concern value,” “value in use,” or a special value to a specific property user may not be used as market value for federally related transactions. An appraisal may contain separate opinions of such values so long as they are clearly identified and disclosed.
What is important here is “Value opinions such as ‘going concern value,’ ‘value in use,’ or a special value to a specific property user may not be used as market value for federally related transactions.” The ‘going concern value’ or ‘value in use’ is the special value that a property and/or business had while in operation. This value will cease to exist when the business operation is no longer functioning.
This type of use valuation is typically utilized for mergers, acquisitions, or security issues. One thing is clear with the 2010 IAG this type of definition for market value is never to be used for a Federally Regulated Transaction (loan secured by Real Estate).
With residential appraising this is generally not an issue, but we find occasionally with commercial appraisals that this type of value definition and resulting market value estimate is used. Simply put, don’t do it! It’s against federal regulations, and the appraisal will not be accepted by any bank. Federal examiners are actively looking for this type of value estimate; we just don’t want to go there!
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