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Real property appraisers often value special-use properties, hotels and seniors care facilities, to name a few, on a going-concern basis. The term 'goingconcern' is not defined in the Canadian Uniform Standards of Professional. Practice (CUSPAPI, although it is defined in The Appraisal of Real Estate, 3rd Edition, wherein the definition is: "All tangible and intangible assets of an established and operating business with an indefinite life."' According to the Canadian Institute of Chartered Business Valuators' (CICBV), the definition of 'going-concern value' is: "The value of a business enterprise that is expected to continue to operate into the future. The intangible elements of going concern value result from factors such as having a trained work force, an operational plant, and the necessary licenses, systems, and procedures in place""
In the context of real estate appraisal, the going-concern value of a property is effectively the sum of the value attributed to its 1) land; ") building and site improvements; 3) furniture, fixtures, and equipment (FF&E) and operating supplies and equipment (OS&E); and 4) goodwill and intangibles, if any. Each of these components of value is characterized by a different risk-return profile, as illustrated in Illustration 1.
Members of the Appraisal Institute of Canada (AIC) are trained to value tangible assets such as land and buildings, with some Members expanding their scope of expertise to include the valuation of machinery and equipment. In certain situations, the value of a going-concern business (or holding company) may require the expertise of more than one valuation professional (i.e., real estate appraiser, equipment appraiser, and/or business valuator). When this is the case, it is critical that each of the valuators understands the terms of reference (i.e., effective date of valuation, intended use, scope of work, etc.) in order to ensure that the overall value of the subject asset (or other interest such as shares, partnership units, etc.) is calculated in a consistent manner. A brief summary of the similarities and differences between going-concern real estate appraisals completed by Members of the AIC and going-concern business valuations completed by members of the CICBV is provided below:
1.Definition of Value
There are subtle differences in the most commonly used value term in real estate appraisal vs. business valuation, as follows:
Dissimilarities include the practice...