The appraiser’s corner

Editor's note: This column is written by Mike Amundson, managing director of the Minneapolis/St. Paul office of Integra Realty Resources..Q. "What are the new appraisal requirements for SBA Going Concern loans?".A. The Small Business Administration issued new Standard Operating Procedures effective Oct. 1, 2011. Among the changes were requirements for going concern appraisals and the qualifications of the parties performing the appraisals. Under the new policy, real property appraisers who do not hold a recognized business valuation designation must complete a course on allocation of value. This applies to going concern appraisals when the amount loaned on the business component is greater than $250,000..The new SBA policy specifically identifies only one approved course that satisfies the requirement for real property appraisers. The Appraisal Institute course "Fundamentals of Separating Real Property, Personal Property, and Intangible Business Assets" is the only course recognized by the SBA for this type of appraisal assignment (see p. 191 of SOP 50 10 (D) Lender and Development Company Loan Programs). Appraisers who have taken the course and passed the exam will be placed on the SBA Going Concern Registry, located on the Appraisal Institute's website..It is important to note that this policy applies to valuations of going concerns, which may include real property, furniture fixtures and equipment (FF&E) and intangible assets. Real property appraisers may continue to perform appraisals of commercial real estate assets. However, if the SBA loan will be secured by a going concern (a business, including the real property, if any), the appraiser providing the appraisal must be a "qualified source." In many instances, a qualified source will be a business valuation expert. However, SOP 50 10 (D) Subpart B 5.e) states that:.The lender may use a going concern appraisal to meet these requirements if:.The loan proceeds will be used to purchase a special use property;The appraisal is performed by an appraiser experienced in the particular industry and who is either qualified… or has successfully completed the Appraisal Institute course; andThe appraiser allocates separate values to the individual components of the transaction, including land, building, equipment and intangible assets..Examples of properties that would typically be valued by a qualified real property appraiser include hotels, convenience stores with and without fuel sales, car washes, and other types of special purpose properties. Typically, a real property appraiser would be engaged in instances where the majority of the asset value is expected to be real property, such as a hotel or convenience store. If real property value is expected to be minimal in the total value of the business, then a qualified business valuation expert should be engaged. Business appraisers, machinery and equipment appraisers, and real property appraisers commonly work together on valuation assignments to properly estimate and allocate the market value of the business assets. This value is referred to as the Market Value of the Total Assets of the Business.