An appraiser is hired to estimate fair market value of the principal's property. This can be done for the purpose of selling the property, to obtain a loan, or as we discussed in the previous chapter, to determine the rate of rent if it is based on market value. Appraisers have fiduciary capacity in that they will determine the economic outcome of their clients by their work efforts.
Written Report - The appraiser will make a written report on the value of the principal's property. This report could be viewed by many different financial entities involved with the property such as the owner, mortgage broker, banker, property manager, tenant, etc. The important factor is that an appraisal by an appraiser is an opinion of value.
Fee - The appraiser's fee is based on the amount of services provided the principal. As we discussed earlier in the course, there are several different types of appraisal methods that can be completed. If a principal/owner desires 3 different forms, the fee will be larger. If a principal wants a full blown appraisals on 4 different locations there will be a larger fee.
Can't Predetermine Value - An appraiser cannot be subject to a "predetermined building value" placed on them by the principal. There are many instances when an owner will say to an appraiser "I need the value to come in at around $180,000" or something like this. As we just discussed, an appraisal is utilized by many different people such as the owner, mortgage broker, banker, property manager, tenant, etc.
Fiduciary Capacity - The appraiser has fiduciary capacity as to estimating fair market value to all people who view the appraisal.
Inflated/Deflated - To inflate or deflate the value of the principal's property would be a breach of fiduciary capacity. Someone is going to be injured by an improper appraisal. An inflated value would injure the financial institutions providing a loan. There have been instances in a divorce when a spouse wants the value of the house to be deflated when settling up assets with the other spouse. In either case this would be a breach of fiduciary capacity and the appraiser cannot participate in a "predetermined value" request.
Fee Rate - The fee charged by an appraiser is to be based on the amount of time and effort expended by the appraiser. It is not to be based on a percent of the value of property. This is hard for the general populous to understand, but it is true. An appraiser would have to charge the same fee for a multi-million dollar home as a $100,000 if the same amount effort was expended for each.
Reasoning - If appraisers based their fee on the value of the property the State and the financial community feels it would be an invitation to over-value the property to increase the fee.
Fair Value - The State and the financial community want a value that is true above all else.
Selling / Buying Commercial Real Estate
Business Brokerage or Business Chance Brokerage - This is the licensee handling the sale of commercial businesses. Most States do not require a special license for a licensee to handle the sale of businesses. There is certainly more knowledge necessary, but not a special license.
Buying/Selling Businesses - When working with a buyer or seller of a business, there are more things to consider than real estate property. There is current clientele, goodwill or reputation, inventory, furnishings, supplies, current employee abilities, etc.
No License Required/No Real Property - There are instances where the business that is being sold owns no land/ real property. The business only rents space so that it can write off the entire cost of obtaining floor space. The business only owns personal property (chattel fixtures) such as equipment, furniture, inventory, etc.
License Required - Land/Real Estate - In order for broker of the owner to sell the business that owns the land, the broker needs a normal real estate broker or managing broker's license. This is required if the broker is charging compensation for handling the sale of the business.
Dangerous Appraisal - The most dangerous appraisal for commercial property is a RETAIL STORE. An appraiser gains financial information from the selling owner. Past history has shown that some owners "cook the books" in order to sell at a good price.
CAREFUL : There is no such thing as a Business Chance Broker's License. State exams are notorious for using this type of licesne to trick students.
Uniform Commercial Code (UCC) - Bulk Transfer
Uniform Commercial Code - UCC - The 50 States have banded together and formed the UCC to standardize the commercial transactions of selling personal property, stock, merchandise, and fixtures of a business. The reason for the UCC is as follows:
Debtor Requirements - The debtor must file a SECURITY AGREEMENT with County Clerk and Secretary of State regarding those items purchased on credit. The filing of this security agreement gives constructive notice that a lien has been placed on the personal property purchased by the business. By doing this, the seller of the business has given constructive notice of any and all potential purchasers of the business that there is a lien on the personal property.
Buyer's Duty To Creditors Of The Business - The buyer of a business has specific duties that are to be followed under the Bulk Transfer regulations of the State:
Example: Z is buying a clothing store from H. H must file a Security Agreement with the County and State that has a list of all the creditors of the store. Z must then contact each creditor at least 10 days prior to the sale. If a creditor doesn't want to work with Z, the creditor can attach the assets of the business within that 10 day period.
No Affidavit or Notice - If there was no affidavit filed with the County or notification was not sent to the creditors, the buyer is in hot water. The filing must be given to those creditors who properly filed a Security Agreement or were listed on the affidavit.
Void Sale - The sale of the business property is void as to creditor's rights. The creditors can come in at any time and take title to the property the creditor owned and did not receive payment for.
No Title - The purchaser has not acquired good title to any of the business personal property that was part of the sale. The creditors have title to their goods and can seize them at any time.
Attachment - The assets are subject to attachment for payment of debts. The creditors can come in at any time within a 6 month period and grab the personal property unless the new buyer/owner pays for the goods.
Statute of Limitations - No action can be taken by a creditor against the sale of personal property after a 6 month period. This begins from the date the buyer takes possession of goods. However, the 6 month statute of limitations period does not apply if the sale was concealed from the county and public.
When charging an appraisal fee, a licensee must:
1. provide a narrative report
2. base the fee contingent upon the estimate of value resulting from the appraisal
A) 1 only
B) 2 only
An appraiser's fee is typically based on which of the following?
1. value of the property
2. time and expense
A) 1 only
B) 2 only
A salesperson, who sells a business for an individual, should make sure the listed creditors and schedule of property is filed in the County Clerk's office pursuant to which of the following?
A) truth-in-lending Law
B) civil code
C) uniform commercial code
D) landlord-tenant act
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