When professional appraisers value businesses and tangible assets, they are educated to consider and rely on a consistent set of methodologies, regardless of the industry or type of asset being appraised. These approaches are critical to understanding how accredited appraisers become independent experts in the field of valuation. Without this set of guidelines, the industry would become a Wild West of unregulated methods, with no unbiased governance.
That said, there are several different variables within each market and industry that will influence the valuation of the subject property being appraised. The overall scope of work and available data will also dictate which methodologies will ultimately be relied on.
In business valuation, for example, multiples and risk premiums relied upon under the market and income approaches will vary depending on the specific company and industry involved.
With machinery, the available market data for new and used equipment will dictate how much weight can be placed on the cost and sales comparison approaches. The useful life and effective age of a particular asset will also affect its value.
These distinct variables will affect the conclusion of value; however, the appraiser needs to remain consistent with the universally accepted approaches they are taught to consider and rely on.
It’s perfectly acceptable to exclude certain approaches if the data is not there to support them or the situation doesn’t call for them. For example, the income approach is rarely used when appraising machinery and equipment; however, it is one of the more common methods when valuing small businesses. This is due in part to the difficulty of tying revenue and expenses directly to a business's underlying tangible assets.
The definition of value being applied will also factor into the determination of the appropriate approach. Fair Market Value-Installed is a concept distinct from Orderly or Forced Liquidation and may determine which methodology is more reliable or supportable.
In summary, every valuation will have its own distinct components that influence its direction; however, the appraiser must use the same consistent set of approaches and methodologies for every project they take on.