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Appraising And Valuing Mortgage Notes And Real Estate Notes

Is value absolute or subjective?

Under normal circumstances we think of individual things and having "a value" (one value). But, in reality most things have multiple values. As an example, your beautiful dress or suite may not fit me; consequently, it was worth $ 800.00 to you, but I would not buy it at any price. The same reasoning applies to mortgage note and real estate note valuations. The value of the note will be materially different, depending on who is doing the valuation and why they are appraising it.

Can different and conflicting valuations and appraisals all be correct?

In reality, different investors, who are honest and accurate, can and do arrive at totally different dollar values ​​for the same mortgage note. There is not just one true value. As the saying goes, "beauty is in the eye of the beadler" -value is in the eye of the beholder. There can be many different values ​​placed on the same note, depending why it is being appraised and who is doing the appraisal.

Here are a few examples of different valuations that may conflict, yet all may be correct:

  • Appraised value
  • Book Value
  • Discounted Cash-flow Value
  • Face value
  • Fair Market Value
  • Future value
  • Intrinsic Value
  • Market value
  • Nominal value
  • Owner's value
  • Third party value

Why are mortgage notes and real estate notes appraised?

People do not just decide to have a note appraised. There is always a reason. The reason will determine the assessment approach to be used. If the note is being valuing for tax purposes-inheritance tax, gift tax, estate tax, donation tax deduction-the IRS will specify the appraisual definition to be used. If the note is being valued for selling purposes, the potential buyer will probably have an opinion of value that differs from the seller's. Negotiations will be required to arrive at a mutually agreeable price and complete the transaction.

How are different valuations compromised?…

Read More…. by Lawrence Tepper

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