As we continue in this series on Revenue Ruling 59-60 and fair market value, we now analyze the factors used to describe the standard of value. In this post, we discuss Revenue Ruling 59-60’s “basic eight” factors for consideration in fair market value determinations. In addition, we dig into the “critical three” factors mentioned in Revenue Ruling 59-60 – common sense, informed judgment, and reasonableness.

In this fourth post in our series on Appraisal Review, we discuss definitions of fair market value. Fair market value is the most common standard of value employed by business appraisers. It is the standard for gift and estate tax and charitable giving matters as well as for many other appraisal requirements involving the federal government. And it is the most frequently used standard of value in buy-sell agreements and in other business arrangements requiring opinions of value. Despite its frequent employment, it is my observation that fair market value is not nearly as well-understood by business appraisers, attorneys, and courts as it should be.

The levels of value chart for business valuation relates the various “levels” of value to one another on a conceptual basis. It was first published in 1990. This chart recognized what the markets and business valuation analysts had roughly understood for some time about “levels” of value of businesses. 

So what do the conceptual levels of value have to do with fair market value and what does all this have to do with appraisal review?  We review two levels of value charts containing three and four conceptual levels, respectively. In an appraisal, it is critical to specify the appropriate level of value. In appraisal review, it is perhaps even more critical to understand appraisal assignments and reach reasonable conclusions regarding the appropriate level of value. How else can a reviewer reach a valid opinion regarding the quality and appropriateness of the work of another appraiser? How else can a reviewer reach a valid opinion regarding the reasonableness of the conclusion of a report under review? And we have not yet attempted to define fair market value.

In a post last week, I wrote about appraisal review, indicating that this important topic would be a new focus for ChrisMercer.net.  In that post, I addressed appraisal review, not as something mechanical that appraisers do, but much more broadly.  With this post, we begin to look at the standard of value of fair market value through the lens of appraisal review.

After a break of more than two months, I’m back to ChrisMercer.net. This blog and its predecessors has been the beginning point of exposure for most of my thinking for many years. With this post, we turn to a new primary topic of focus — appraisal review. As you will see, there is a great deal more to the concept of appraisal review than a few methods or techniques to be employed. I’m looking forward to the coming exploration of appraisal review.

From December 15, 2019 until now, it has been just over two years. I’ve been walking with intentionality these past two years. Miles, 4,552. Steps, 9.6 million. Health, as far as I know, is better. Attitude, much better. This post recaps the experience of the last two years and offers a few thoughts that I hope you find either interesting, helpful or both.

For the first time in 215 days I walked less than 5 miles, and only the 5th time in the last 671 days. My body was willing, but my spirit needed some relief. In this post I discuss the importance of focusing on the habit of exercise rather than the string of activity.

The thought came to my mind on my walk this morning.  It was undoubtedly prompted by meetings over the years with younger analysts who, because they wanted to find “perfect” answers to valuation problems, were (temporarily) unable to find any answer at all.

Excellence is attainable for many, if not most, at least in some areas of life.  Perfection is unattainable.  The pursuit of excellence is the roadway to success.  The pursuit of perfection is a downward slide to failure.

Business valuation is all about expectations for the future. However, those expectations, as reflected in forecasts prepared for business appraisals, must be realistic. This short post mentions the hockey-stick projections often seen in business appraisals and ask for realistic projections, whether they be explicit forecasts of future years’ performance, or implied forecasts in single-period income capitalization methods.

This post puts benchmarking analysis using averages of restricted stock studies to determine marketability discounts to the test and the test is failed. If cannot work for even a simple, single asset holding company interest. Read the post and you will not employ simple benchmark analysis again. The post is necessarily long. Print it off or bookmark it when you have time to read it and think about its implications.