ClarityBV Blog

The Appraisal Standards Board (ASB) recently issued its Third Exposure Draft of Proposed Changes to the 2010–11 Edition of the Uniform Standards of Professional Appraisal Practice (USPAP). Following are a couple items of note from the Ethics Rule.

Disclosure of prior assignments

• If known prior to accepting an assignment, and/or if discovered at any time during the assignment, an appraiser must disclose to the client, and in the subsequent report certification:
  • any current or prospective interest in the subject property or parties involved; and
  • any services regarding the subject property performed by the appraiser within the three year period immediately preceding acceptance of the assignment, as an appraiser or in any other capacity.

If an appraiser agreed with a client not to disclose that they appraised a property, the appraiser must decline all subsequent assignments that fall within the three-year period!

Disclosure of commissions or fees

• An appraiser must disclose that he or she paid a fee or commission, or gave a thing of value in connection with the procurement of an assignment.

The rule notes that a disclosure must appear in the certification and in any transmittal letter in which conclusions are stated. However, disclosure of the amount paid is not required.

Now is a good time to consider estate-planning transfers. Business values are down, and it appears the estate tax is here to stay. The window of opportunity may be small given the potential for tax law changes.

1. Market values are down across nearly every part of the U.S. economy. For example, see recent articles in the Wall Street Journal and Yahoo! Finance. This provides an opportunity to transfer a larger portion of a privately held business under current gift transfer limits.
2. Applicable Federal Rates are at historic lows. This makes certain trust planning techniques even more attractive. An article in Forbes last December noted that “Lower business valuations and interest rates make business succession right now a no-brainer.”
3. Estate taxes may be here to stay, but some valuation discounts may not be. See the ABA’s Heckerling Reports announcement of the “Pomeroy Bill” HR 436, which would eliminate certain discounts for lack of control and/or lack of marketability for family-owned businesses.

A few caveats…

1. No one knows for sure what will happen with estate taxes and discounts. These types of changes have been proposed before. However, for business owners already considering transfers, this is just one more reason to make them.
2. Although asset values are down, history has shown that further declines are always a possibility. Making these planning transfers assumes a viable business that is not facing a real risk of disappearing altogether.
3. The IRS continues to challenge discounts and pursue appraiser penalties. Compliance with professional standards and clear documentation are vital to building a strong basis for a valuation opinion.

Just finished reading “The Ascent of Money: A Financial History of the World” by Niall Ferguson.

The book was relatively easy reading on what could have been a dry subject. I took away a couple of thoughts about business valuation.

1. No matter how one slices and dices historical public market data, it still represents a sample size of one. The returns for a given company, year, or other strata are not independent variables. Rather, they represent the results of a sequence of events.

2. The financial markets may be a mirror reflecting the best of humanity as well as our blemishes. Similarly, a business valuation may be a mirror that reflects the way a business looks to the market at a particular point in time.

The 24-hour news cycle and details of financial analysis make it easy to lose perspective. A book like this is a great way to step back and see the forest for the trees.

I know what you’re thinking…

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