2. PRICE ≠ VALUE
Price does not equate to value!
Price and value gap is the primary reason for the
credit market and investment market instability and
collapse.
Price is determined by a single purchaser and/or
investor while value is driven by a broader exhibition
of transactions…or not?!
3. SUB-PRIME CRISIS
Does any Single Source Bear the Blame?
NOT ONLY the home buyers who failed to keep their end
of the mortgage bargain…
NOT ONLY the physicists/mathematicians concocting
inexplicable formulas on which to base credit swaps and
derivatives…
NOT ONLY the CEOs and analysts who were not looking
when the vague financial instruments were bought and
sold…
NOT ONLY the 2000 Congress and President who
legalized gambling on Wall Street…the same law that was
established after the Great Depression…
4. ISSUES THAT IMPACT PRICE
Commercial Transactions
Cash put on the table to off-set lease up cost for the
sake of mitigating risk for the buyer
1031 transaction
Owner/user may have purchased property at price
reflecting:
“Investment Value”
“Value in Use”
5. ISSUES THAT IMPACT PRICE
Residential Properties
Clear variances with market are not generally exhibited
What is value when:
Broker pushes price for sake of commission
Appraiser pushes value to make deal work
Lender executes mortgage with borrow at 0% down
Fraudulent value…What is value?
6. TYPES OF VALUES
ARV Which Value is Recorded?
Business value Prospective value
Disposition value Retrospective value
Fair value for purchase Transaction value
price allocation
Hypothetical value
Going-concern value
Value as is
Insurable value
Value in use
Investment value
Market value
Liquidation value
7. AGGREGATE OF RETAIL VALUES
A Definition
ARV or Aggregate of Retail Values
Derived within sell out analysis of a subdivision and/or
condo valuation
ARV is not market value
Many lenders and developers (mistakenly) consider ARV
as figure on which to base their loan or measure their
profit
Present value of net income stream should be taken into
account – should account for all cost including holding
cost and risk
Net cash flow over the sell out period is then discounted
at appropriate yield rate (including profit)
“As is Market Value” is relative to a single buyer/investor.
8. GOING CONCERN VALUE
A Clarification
Going Concern Value
Often misinterpreted as market value of the
real estate (hotels/theatres/senior living
properties/golf courses)
Includesvalues of real estate, FF&E or M&E
and business values
Real estate value is often exaggerated for lack of an
appropriate allocation
9. PURCHASE PRICE ALLOCATION
Another Clarification
Purchase Price Allocation
Toweight the poor performing properties in a
portfolio transaction for future collateralization
To apportion a portfolio acquisition price to
individual properties based on market forces
To allocate a predetermined purchase price
between the tangible and intangible assets
being acquired for financial reporting purposes
10. A CLEAR VIEW
Understanding What Is Recorded
Current economic collapse due to a
price/value gap
Various values may reflect anything but
market value
Recorded purchase price may not indicate
market value
Understanding the various definitions of value
and being in tune with the market bridges the
chasm between price and value
