What is the Difference between a Valuation and an Appraisal?

Essentially, there is none.  NACVA generally calls it a “Valuation” if it is a valuation of a business or intangibles, and reserves the use of “Appraisal” for tangible assets, such as real estate or machinery and equipment.  USPAP does not use the term Valuation at all, and refers to all valuations as appraisal reports.  In either case it implies that it is an opinion or conclusion of value derived pursuant to applicable standards, by a qualified individual, using generally accepted appraisal methodologies.  The International Glossary of Business Valuation Terms, to which all major appraisal certifying organizations are signators, indicates the terms are interchangeable.

What are the Four Basic Types of Valuations?

• Tax Purposes (Estate, Gift, and Personal Property taxes)
• Transactional Purposes (Sales, Mergers and Acquisitions, Buy-Sell Agreements)
• Regulatory Compliance (ERISA (Department of Labor) pension plan compliance for ESOPS, QES 401(k) investments)
• Litigation (Divorces, Partner/Shareholder Disputes, Forced Sales and Settlements)

What Are The Requirements For A “Qualified Appraiser?”

The IRS, the U.S. Department of Labor (ERISA laws), and the SBA have developed criteria for qualified appraisers.  The list becomes quite detailed, but in general the following typically apply:

• Appraiser must be accredited by a recognized professional appraiser organization.  (NACVA, IBA, AICPA and ASA are the primary recognized entities and they each have specific requirements for education, experience, a comprehensive examination, and peer review of valuation work.  In addition, all have significant continuing professional education requirements to maintain accreditation.
• Appraiser regularly performs appraisals for compensation.
• Requires a minimum of two years’ experience in valuation of the type of property in question.
• Requires the appraiser has not been prohibited from practicing before the IRS within the previous 3 years.
• Prohibited Appraiser --The client or donor, the donee, a party to the acquisition of property, a party employed (either directly or as an independent contractor) by the subject company or a related party.  This includes legal, accounting, and business consultant professionals.

What Are The Requirements For A Qualified Appraisal?

• Must be prepared by a QUALIFIED APPRAISER.
• Must meet generally accepted valuation standards, interpreted as meeting the Uniform Standards for Professional Appraisal Practice (USPAP) as developed by the Appraisal Standards Board of The Appraisal Foundation, or greater.

Standards Used By American ValueMetrics:

American ValueMetrics valuation reports conform with both NACVA and USPAP standards (the differences are slight) thus being acceptable to virtually all governmental agencies, and the business community in general.  The standards are discussed further below:

NACVA Standards

American ValueMetrics appraisers are, among other things, accredited by NACVA as an AVA (Accredited Valuation Analyst).  This requires membership in the National Association of Valuation Analysts, and adherence to NACVA standards.  This accreditation was sought for two principal reasons:

• NACVA trains and certifies IRS employees and valuators
• NACVA's Certified Valuation Analyst (CVA) and Accredited Valuation Analyst (AVA) designations are the only valuation credentials accredited by the National Commission for Certifying Agencies (NCCA)
  
  Since 1977, the NCCA has been accrediting certifying programs based on the highest quality standards in professional certification to ensure the programs adhere to modern standards of practice in the certification industry. NCCA is the accrediting body of the Institute for Credentialing Excellence (ICE), (formerly known as the National Organization for Competency Assurance (NOCA)) whose mission is to promote excellence in competency assurance for practitioners in all occupations and professions.

USPAP Standards

American ValueMetrics has adopted USPAP standards (Uniform Standards of Professional Appraisal Practice).  These standards have been authorized by Congress to apply to any valuations involving federal use.  This would include agencies and businesses to which federal regulatory laws apply, such as recipients of federal monies, federally insured lenders, and public agencies.  They are mandatory for real estate appraisals, and though only recommended for business and personal property appraisals, have become de facto the accepted standards for these types of valuations amongst reputable valuation firms.

The Uniform Standards of Professional Appraisal Practice (USPAP) is the generally accepted standards for professional valuation practices in North America.  USPAP contains standards for real estate, personal property, business and mass appraisal.

USPAP sets standards for ethics, competency, and appraisal (valuation) procedures. The overall thrust is to enhance quality, protect clients’ privacy, ensure that appraisers are unbiased and do not benefit directly from their opinions (except for appropriate fees) and further sets specific standards for appraisal (valuation) of the various kinds of properties.