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APPRAISER COMPLIANCE

The Financial Institutions Reform, Recovery and Enforcement Act of 1989 recognizes USPAP as the generally accepted appraisal standards and requires USPAP compliance for appraisers in federally related transactions. State Appraiser Certification and Licensing Boards; federal, state, and local agencies, appraisal services; and appraisal trade associations require compliance with USPAP. (www.appraisalfoundation.org)

LITIGATION SUPPORT

Litigation support can provide guidance and documentation at key junctures in litigation involving a home or houses. Litigation regarding a home is often a emotionally charged; a skilled expert witness can provide counsel and the home owner impartial insights. Litigation support typically involves divorce, condemnation, construction defects or a seller not disclosing known defects prior to a sale.
Single-family litigation support can include consulting and/or valuation and expert witness testimony. Following are some of the types of support Brunson-Jiu, LLC can provide for single-family litigation:

  • Assistance evaluating the case and the level of exposure or opportunity;
  • Reviewing analysis or appraisals performed by third parties;
  • Developing an appropriate measure of damages;
  • Preparing an appraisal and developing an opinion regarding the amount of damages, if any exist;
  • In-depth research regarding complex issues such as whether there is a deleterious effect on the market value of a home after a slab has been repaired or whether the existence of PVC pipe (which has not failed) negatively affects the market value of a home;
  • Expert witness testimony at depositions and trial.

Most single-family litigation assignments are complex and require seasoned judgment. Brunson-Jiu, LLC provides an invaluable resource for both simple and complex cases in single-family litigation.

EXPERT WITNESS TESTIMONY

Expert witness testimony is a subset of litigation support services. The expert witness' primary responsibility is to develop and support a credible opinion of value. The standard of care for expert witness assignments is written to appropriate standards for courtroom use. Both opposing counsel and the expert witness representing the other party will likely carefully review and scrutinize the expert's underlying data, analysis and final report. Expert witnesses who develop a credible opinion of value and are able to effectively articulate it help to effect resolution of cases prior to trial. Expert witnesses who develop an opinion of value which is unreasonable tend to cause cases to unnecessarily proceed to trial.

The appropriate standard of care for expert witness assignments extends through all phases of the assignment. The expert should precisely determine the scope and purpose of the assignment. All data needs to be researched and verified. In many cases, even if sales data has been previously confirmed, it will be verified a second time for the expert witness assignment. The calculations and thought process for the analysis need to be checked and double-checked, as do the report. The expert needs to carefully prepare for both deposition and trial testimony.

Appraisers sometimes believe that preparing a voluminous narrative appraisal, totaling perhaps 200 pages, which effectively documents their opinion, is helpful for litigation. However, it is virtually impossible to prepare a voluminous document without overlooking minor errors. For this reason, is typically better to summarize the data and opinion instead of presenting them in a voluminous report.

It is imperative that the expert witness understand that the objective of opposing counsel is to discredit the witness and their testimony. Any aspects of the experts' opinion, data, analysis or testimony which does not appear to be reasonable provide opposing counsel an excellent opportunity to discredit the expert witness.
The expert witness needs to be an advocate for their analysis and opinion, not for their client. Novice expert witnesses sometimes succumb to pressure from clients or other parties to develop an opinion which is not reasonable, credible or supportable. While this approach initially appears helpful to the client, it does not typically provide meaningful assistance to legal counsel or the client since it is not credible evidence for trial. Therefore, it is not efficacious for resolving litigation. In addition, opining an unreasonable opinion has a deleterious effect on the reputation of the expert witness.

A credible expert witness who is properly prepared to document and articulate a credible opinion is an integral part of the team necessary to resolve cases before trial or win at trial. Legal counsel and the expert witness need to directly discuss the strengths and weaknesses of the case. Although a credible report may not comply with the exact preference of the party or counsel, it is an effective method to provide counsel with the insights they need to effectively resolve the case.

REVIEWS

HOW ACCURATE IS YOUR APPRAISAL?

WAS YOUR APPRAISAL COMPLETED COMPETENTLY?

Brunson-Jiu, LLC has a AQB Certified USPAP Instructor on staff to ensure the accuracy of your appraisal report.

  • Appraisal Field Reviews: We'll check your appraisal for accuracy and provide an exterior "field inspection" of the subject and comparable properties for maximum appraisal certainty. Perfect for any situation demanding a second opinion on value.

  • Appraisal Desk Reviews: Need to just "double-check" the facts? Brunson-Jiu, LLC will utilize our professional market researchers and office databases to deliver reviews with the highest degree of precision in the industry.
HIGHEST & BEST USE ANALYSIS

Highest and best use analysis can assist an owner in maximizing return. Highest and best use analysis can be performed for acreage, site development, and for improved properties. Research and planning can substantially increase investment returns.

If in a metropolitan area, highest and best use can be a combination of uses including single-family, multifamily, and commercial. Mixture of uses and timing of development are both critical factors. Commercial and multifamily land will yield a higher value, but artificially calling a use commercial will result in an excessive holding period. Ultimately the highest and best use may still be single-family.

Highest and best use for a single site may seem intuitive. For example: 1.) this is clearly an industrial site since it is in an industrial park or 2.) this is clearly a strip center site since it is on a major thoroughfare at the corner of a street which enters a subdivision. However, an appropriate highest and best use study will be detailed and precise. For the industrial property consider the following issues:

  • Tilt wall versus metallic;
  • Office warehouse versus warehouse versus flex;
  • Percentage of office build out;
  • Quality of office finish;
  • Depth of truck apron;
  • Eave height;
  • Truck wells versus grade level versus dock height;
  • Sprinkled;
  • Parking ratio;
  • Level of landscaping;
  • Quality of finish for front of building;
  • Type of elevation for front of building;
  • Cranes;
  • Stabilized yard.

For an existing building on two acres, the following should be addressed:

  • Is the current use the highest and best use or should improvements be demolished (explain if used as improved; land and demolition; highest and best use is demolition).
  • Should existing use be revised or upgraded

Consider the following examples:

  • Old office building in central business district into lofts;
  • Old big box into self storage;
  • Apartments to condominiums;
  • Upgrade class C apartments in affluent area to class A-/B+;
  • Convert warehouse to flex;
  • Cure deferred maintenance and renovate class C office building into class B office building.

Research and analysis by seasoned real estate professionals can help identify highest and best use to maximize returns. The old bromide of measure twice and cut once fits highest and best use analysis.

MARKET RENT ANALYSIS

Market rent analyses evaluate the subject property, competing properties, and market conditions to document an equitable level of rent in an arm's length transaction. Estimates of market rent are developed regularly for market studies, appraisals, lease disputes, and to provide an owner or prospective investor with objective opinions.
Steps in market rent analysis include:

  • Review of subject property;
  • Visit subject property and interview on-site staff;
  • Select rental comparables;
  • Gather data on rental comparables;
  • Visit rent comparables and interview on-site staff;
  • Review market data regarding rental and occupancy rate trends;
  • Summarize rental rate features and amenities of subject property and amenities;
  • Make adjustments for differences between sale price and comparables (based upon data and insights obtained during visits to rent comparables);
  • Summarize and report conclusions (report can be oral to detailed narrative report).
When contemplating a market rent analysis it is prudent to consider including suggestions for financially feasible upgrades as part of the scope of work. The data gathering and analysis will take a modest about of additional time. Suggestions for upgrades can enable the owner to substantially enhance the value of the property.
REAL ESTATE CONSULTING

Real estate consulting covers a breadth of areas including market rent study, market study, feasibility study, highest and best use analysis, cost segregation and analysis for an under performing asset. Clarifying the client's objectives and expectations is the cornerstone of a successful real estate consulting engagement.

Real estate consulting begins with a detailed discussion regarding the concerns, constraints and time frame related to an assignment. Through a series of interactive questions regarding relevant topics the scope of work and reporting requirements can be developed. Real estate consulting could include the following:

  • Highest and best use for 5,000 acres in a metropolitan area;
  • Highest and best use for 3 acres on a major thoroughfare in a metropolitan area;
  • Highest and best use for 40 year old office building in an area of regentrification;
  • Market rent study on a floor-by-floor basis for 50 story office building;
  • Market rent study on a floor-plan by floor-plan basis for 256-unit apartment complex;
  • Evaluation of efficacy of leasing effort for industrial building;
  • Evaluation of management for an office building;
  • Review of level of operating expenses for an apartment complex;
  • Evaluate whether proposed scope of work to renovate an upgrade an apartment complex is appropriate;
  • Develop scope of work to renovate and upgrade an office building;
  • Confirm whether a retail strip center is the highest and best use of a site; if yes, develop highly detailed design characteristics including building dimensions, type of materials, number of parking spaces, layout, ideal tenant for end cap, level of tenant improvement to provide first generation tenants, elevation, type and quality of signage, type and amount of landscaping, etc.;
  • Review real estate portfolio and suggest changes based on market conditions, market trends, and the investor's objective;
  • Prepare an evaluation of market status and likely trends for an individual asset to provide guidance regarding whether or not to sell;
  • Due diligence regarding a pending acquisition;
  • Due diligence for a contemplated disposition.

Real estate consulting includes many activities. Clearly defining the clients' objectives helps generate an appropriate scope of work. Engagement agreements should require consultants to call the client during the assignment if certain conditions occur (i.e. initial analysis indicated proposed property is not likely feasible).

TAX APPEAL

We attempt to reduce your property taxes for each property every year, even if the value did not change!
We have the expertise and the manpower to help you lower your property taxes. We will aggressively pursue every legal avenue to protest and lower your taxes:

  • Informal hearings
  • County Board of Equalization hearings
  • Judicial appeals

Declining market values are painful. You don't have to pay inflated property taxes!

Expecting the Clark County Assessor to correctly reduce your assessed value is risky. Even if you don't think political pressure impacts the values, the assessor must value hundreds of thousands of properties!

Hire Brunson-Jiu, LLC to appeal high property taxes. You pay NOTHING unless we save you money! There are no upfront costs and no flat fees. You can't lose.

January 15, 2010 is the deadline to protest most accounts.
If you filed your own protest in Clark County, ValuatonStation can still represent you at your hearing.

Please note: It makes sense to do your own research before determining whether to go forward with a property assessment appeal, especially before you make the decision to hire a professional appraiser. However, according to the Uniform Standards of Professional Appraisal Practice (USPAP), we are not allowed to take "shortcuts" -- i.e., your research -- and use it on its face as part of our independent evaluation. When you hire us for an assessment appeal, you're commissioning an independent, third-party professional appraisal report. As such we do our own evaluation, beginning to end. If you're right that your property has been overvalued, an independent report such as ours will be even more persuasive than any other evidence you can marshal on your own. But it depends on our ability to do the work independently.

Sometimes, you will have a hearing on your assessment appeal and will need for the appraiser you've hired to testify on your behalf. Be assured that at Brunson-Jiu, LLC, we are able to professionally and persuasively testify at appeal hearings. Browse our website to learn more about our qualifications, expertise and services offered.

GIFT TAX VALUATIONS

Gift tax valuations are prepared for many reasons. Gift tax includes market value of gifts to charity, market value of conservation easements and gifts in excess of annual limit. Well-reasoned planning of gifts can minimize gift taxes, income taxes, and estate taxes.

Gifts to charity are included in the gift tax laws. Gifts to charity can reduce taxable income and income tax. Donate appreciated assets and you do not have to pay capital gains tax. However, you receive a deduction for the current market value of the asset.

Gifts made prior to death are often made to transfer wealth and reduce estate taxes. There are no gift taxes if the gift per person is below a specific amount per recipient. Both husband and wife can each give the max amount to each other and not pay the gift taxes.

Advanced planning and proper structuring can maximize the transfer of wealth without relinquishing control. Consider XYZ Company, owned by Mr. and Mrs. Carnegie, which is worth $10 million. Clearly a taxable estate.

  • Split into 100 A shares which own 10% and have 100% of control and 100,000 B shares which own 90% and have no voting rights;
  • B shares are transferred to ABC Company which has stocks and other liquid assets worth $1,000,000.

Assume market value of all ABC assets are worth $5.5 million (1.0 million + 50% x 9.0 million). Mr. and Mrs. Smith own 90% of ABC and the remaining 10% is owned by employees of XYZ Company. ABC is not a public company and shares may not be sold without prior approval of Mr. and Mrs. Smith during their life (sole discretion). Assume a 40% discount for illiquidity and lack of control, 1% of ABC is worth $27,000 (4.5mm x .01 x .6).

Hence assets worth $10,000,000 ($9million + $1million) are reduced in value to $2.7 million. If they have four children and each give the maximum, they can give 4.74% per year and not pay gift taxes.

FEASIBILITY STUDIES

Feasibility studies are a combination of a market study and financial analysis used to determine if it is financially feasible to develop a proposed property. They are also performed to evaluate the feasibility of renovating or upgrading an existing property. Feasibility studies determine whether a property is financially feasible and whether its complete and stabilized value are equal to or exceed (1) the total costs to build it, (2) entrepreneurial profit and (3) an adequate return for the capital invested to develop the property.
Following is a summary of the steps in performing a feasibility study:

  • Develop scope of work with client;
  • Gather data (rent comparables, properties under construction, proposed properties, market occupancy and absorption, submarket occupancy and absorption and data for economic drivers which impact future prosperity for the real estate market); and
  • Analyze data to develop opinions of market rent, stabilized occupancy and the time likely required for the proposed property to reach stabilized occupancy.

Most market studies focus upon the revenue portion of a profit and loss statement. They do not address operating expenses or the value of the property at stabilized occupancy. A feasibility study addresses the factors in a market study and also addresses operating expenses and the value as stabilized. Feasibility studies also address whether the indicated market value is sufficient for the property to be financially feasible.

A feasibility study involves two areas where seasoned judgment is necessary: 1) judgment regarding market rent, occupancy and absorption and 2) judgment regarding the amount of entrepreneurial profit and return for the equity investor necessary to make a property financially feasible.

ESTATE TAX APPRAISALS

Estate taxes are often referred to as the death tax. Few Americans are subject to estate taxes due to the exclusion on the first $2,000,000 of an estate (2006, 2007, and 2008). Taxpayers with estates substantially in excess of this amount should consider planning to minimize estate taxes. For family businesses, it is important to ensure adequate liquidity is available to pay estate taxes (so the business does not have to be sold to pay the taxes).

Estate Tax Reduction
Estate taxes can be sharply reduced or eliminated through advance planning. Options to reduce estate taxes include trusts, family limited partnership, gifts prior to death, gifts at death, and skillful use of partial interests. This summary focuses upon partial interests. A partial interest is worth less than the proportionate share of the underlying asset. Partial interests can result from ownership of a portion of an asset or entity, or can be designed during the estate tax planning process. Skillful use of partial interests can dramatically reduce estate taxes. In some cases, tiers of partial interests can reduce estate taxes even further. For example, an entity that owns a series of partial interests can be owned by multiple people. Partial interest valuation values the ownership of a portion of a property, limited partnership, general partnership, corporation, LLC or LLP.

Partial Interest Valuation
Valuing a partial interest involves first valuing the underlying asset and then determining a discount for a partial interest. The valuation of a partial interest involves two separate appraisals. Partial interest valuation is more complex than most valuation problems and requires intense analysis and seasoned judgment. Reasons for performing a partial interest valuation are typically related to estate tax valuation or estate tax planning but could involve divorce, business dissolution or valuation of collateral for a bank.

Partial Interests are Worth Less
Partial interests are almost always worth less than an undivided interest. This is because they are illiquid and lack control. Partial interests are illiquid since it is difficult to sell a limited interest in a property or nonpublic company. In addition, the sale of a partial interest in many entities is subject to approval by other owners. In many cases, other owners can choose to not allow the sale in their sole discretion without providing a reason.

Limited or Non-Control
The owner of a partial interest has less control than the owner of the entire property or entity. Even if someone owns a controlling interest, their actions are subject to review and scrutiny by the owners of the balance of the property or entity. The owner of a non-controlling interest typically has very limited ability to control decisions or influence the management and policies for a property or entity. Following are some of the detrimental effects of not having control of a property or entity:

  • Cannot make decisions regarding selling the property, perhaps in advance of a declining market or for personal reasons
  • Limited or no ability to impact the quality of management or to choose a different management company
  • Limited or no ability to impact business policies
  • Limited or no ability to impact strategies or tactics
  • Limited or no ability to impact refinancing the property
  • Limited or no ability to impact the level of financial leverage
  • Discounts for a partial interest are often 20% to 50% of the proportionate value of the entire property or entity. These are considered a typical level of discount.

Some of the factors determining the degree of discount for a partial interest include the percentage of ownership, whether it is a controlling interest, asset performance, the number of partners, the relationship between the partners, issues with the property (such as risk, condition and financing), market conditions and trends, and the quality of the general partner.

The steps involved in a simple partial interest valuation are as follows:

  • Value the entire property or entity
  • Calculate the value of the proportionate share in the property or entity (value of the entire property times percentage owned)
  • Determine the appropriate discount for the partial interest
  • Calculate the value of the proportionate share after the discount for a partial interest.
Partial interest valuations are more complicated when there are preferred returns and multiple types of partners.

Consider the following example. John and Sally Jones are 70 years old and own an apartment complex worth $10 million. They owe $6 million in debt. They transfer ownership to a limited partnership and start giving their three children, their spouses and their seven grandchild (in trust) each the maximum annual gift not subject to tax ($12,000 per year per person in 2006 - 2008). This allows them to gift $156,000 per year (13 people x $12,000 per person).

The partnership is structured so the parents retain cash flow during their lifetime. The appraiser valued their property at $10 million. This left equity of $4 million. The partial interest discount was 40%, reducing the taxable value to $2.4 million.

The second parent dies when they are 85. The parents retained all cash flow during the previous 15 years. They have also had the exclusive right to control capital events (sale or refinancing). At this point, they have transferred $2.34 million of the $2.4 million of equity in the property. There were no taxes incurred during the transfer, and the taxable estate is reduced substantially.

Based upon a 45% estate tax rate, they reduced their estate taxes by $1.773 million (($4 million - $0.06 million) x 45%).

It is possible to substantially reduce estate taxes. However, most meaningful strategies require advance planning.
BUSINESS VALUATIONS

Business valuations are performed using methodology similar to the process for real estate appraisals. However in business valuation, the data sources are different. Further, there are nuances in the form of analysis.
Reasons for business valuation engagements include the following:

  1. estate tax valuation and planning
  2. business purchase price allocation;
  3. divorce;
  4. loan documentation;
  5. litigation;
  6. research to determine the asking price for a business;
  7. documentation that a purchase price is equitable.

Options for business valuation include :

  1. Multiple of revenue -- the revenue multiplier varies from industry to industry and with the size of the business. The appraiser compiles data for similar types of businesses with similar levels of sales and determines the business valuation based upon industry rules of thumb, features for the subject property and comparable sales and data for the sales .
  2. Comparable sales -- the appraiser seeks information for similar businesses which sold recently including revenues, net profits, assets, liabilities.
  3. Cash flow/income approach/earnings based methods -- options include a discounted cash flow analysis and multiplier of net income (typically net income before interest, taxes, depreciation and amortization, sometimes referred to as EBITDA).
  4. Asset based valuation -- this business valuation method is a hybrid of the net value of assets plus a multiplier of annual cash flow. The multiplier is typically relatively low since it is added to asset value.

Methods for business valuation vary with the type of business. Mid-market to large businesses are more likely to sell based upon a multiplier of EBITDA. Smaller businesses are more likely to sell based upon a multiplier of revenue or an asset based valuation methodology. The success and outlook for the business also affects the business valuation method and multiplier. A business with poor recent financial results and uncertain future prospects is more likely to sell based upon assets than on a multiple of revenue or EBITDA. A successful mid-market business with steadily growing revenues and net profits would be more likely to sell for a multiple of EBITDA.

 

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