What Is Market Value – In Place and How Can It Work For You!
The term Market Value – In Place is used lots in the business world and yet many don’t know what it is or how it can work for them. I will try to explain this phrase and by giving you an example, help you understand the process and describe how you can benefit from it in business. Successful business owners use this regularly to purchase and sell businesses and make a profit. I will start referring to previous articles I’ve written to show how they are all connected.
“Market Value – In Place” is a professional opinion of the estimated value for the property as installed for intended use. Basically, Market Value – In Place is the value of an asset, or assets, that will remain in the present location and continue to operate in normal operations. It does not usually take into consideration leasehold improvements unless they are directly related to the operations of the piece of equipment. Here’s an example to help explain this form of valuation.
Lets use a laundromat for example. The washers and dryers have a higher valuation when appraised in operations within the laundromat. They are worth more while they are being used in the business setting as a group, as opposed to them being individual units and appraised separately. Okay, so how can I use this to my benefit?
We will continue to use the laundromat as our example. Lets say that the laundromat in question had recently gone into receivership and the lender is putting it up for sale. The business can now be appraised using Liquidation Value
to sell off the assets at a sacrifice, at salvage value only. This appraisal may include the removal of the assets from the business setting which will give the assets a lower appraised value. As a prospective buyer, you can approach the lender and offer to purchase the business at the liquidation value
appraisal price. The lender may only be interested in recovering their losses, due to the bankruptcy, and accept your offer. Once this business is operating and generating a profit, the new owner can now have another type of appraisal preformed on their business. The “Market Value-In Place” appraisal can now be used to valuate the business. In this situation, the Fair Market Value
would be assessed and an allowance for installation, electrical, plumbing, and any other mechanical infrastructure would be added to the appraisal.
I’m sure you’ve heard how people have made money by buying businesses that have gone into receivership. This is one method of how they do it. Of course, if the business is making a profit, it might also be a good idea to keep the business and operate it to continue receiving revenue. I hope that my example and explanation of Market Value-In Place makes sense and you have an understanding of how you can benefit from it in business.
Darryl Bilobrowka, CPPA
Owner/President/Appraiser at DB Appraisals Ltd