Approaches to Measuring Value
This chapter addresses specific approaches used to value property. Such property can be real estate, machinery, equipment, stock of a company, a privately held business, or an intangible asset. These techniques of valuation are conceptually the same irrespective of the particular type of property being appraised. Specific applications of these techniques to valuing a bank are described in Chapter 16.
There are three primary approaches to valuation:
1. Cost approach
2. Market approach
3. Income approach
Each approach is discussed in this chapter, along with special topics relating to valuation of intangible assets and businesses.
Overview of the Valuation Process
Regardless of which particular approach to valuation is appropriate in a given circumstance, there is a basic process to any value estimation undertaking. A valuation professional normally uses five major steps in the process of conducting the assignment:
1. Initial phase (defining the assignment). The first step is to define what is to be valued, the date of the value, the purpose of the valuation, and the means by which the results will be communicated. It is important to all parties concerned that these issues be addressed. The subsequent research, analysis, and approach will be determined by the answers.
2. Selecting the appraiser. The second step is to analyze carefully the property being appraised, whether it is a business, a parcel of real estate, equipment, or machinery. ...