Appraisal and assessment

Appraisal and assessment (감정평가/鑑定評價) refers the process to evaluate real estate and personal properties to assess the market value of such properties.

Appraisal and assessment are needed to get the information of the market value because real estate transactions occur infrequently, and personal properties are rapidly depreciating. Furthermore, all properties differ from each other in their location - which is an important factor in their value.

For the appraisal of real estate, it is necessary and important
 * 1) to identify the object real estate (대상 부동산의 인식)
 * 2) to collect necessary appropriate data (관련 자료의 수집‧정리)
 * 3) to reflect various price factors and principles on the assessment (부동산 가격형성요인 및 원칙의 이해)
 * 4) to decide such price factors as natural, social and economic environment based on the analysis of relevant data (자료분석 및 자연‧사회‧경제‧행정요인의 평가); and
 * 5) to assess the economic value of the object. (대상 부동산의 경제가치를 화폐액으로 표시)

Key words
appraisal and assessment, appraiser, real estate, personal property, intellectual property

Appraiser
The appraiser (감정평가사/鑑定評價士) shall be duly licensed under the Act Concerning the Disclosure of Real Estate Price, and Appraisal and Assessment (부동산 가격공시 및 감정평가에 관한 법률).

An appraiser usually provides an appraisal and assessment report to his or her client. These reports are used as the basis for mortgage loans, for settling estates and divorces, for tax matters, and so on. Sometimes the appraisal report is used by both parties to set the sale price of the property appraised.

In some areas, an appraiser doesn't need a license or any certification to appraise property. Usually, however, most countries or regions require that appraisals are done by a licensed or certified appraiser or property valuer.

Types of Value
There are several types and definitions of value sought by a real estate appraisal. Some of the most common are:
 * Market value: The price at which an asset would trade in a competitive Walrasian auction setting. Market value is usually interchangeable with open market value or fair value.


 * Value-in-use, or use value: The net present value (NPV) of a cash flow that an asset generates for a specific owner under a specific use. Value-in-use is the value to one particular user, and may be above or below the market value of a property.
 * Investment value is the value to one particular investor, and may or may not be higher than the market value of a property. Differences between the investment value of an asset and its market value provide the motivation for buyers or sellers to enter the marketplace.


 * Insurable value is the value of real property covered by an insurance policy. Generally it does not include the site value.
 * Liquidation value may be analyzed as either a forced liquidation or an orderly liquidation and is a commonly sought standard of value in bankruptcy proceedings. It assumes a seller who is compelled to sell after an exposure period which is less than the market-normal time-frame.

Value v. Price
There can be differences between what the property is really worth (market value) and what it cost to buy it (price).

A price paid might not represent that property's market value. Sometimes, special considerations may have been present, such as a special relationship between the buyer and the seller where one party had control or significant influence over the other party.

In other cases, the transaction may have been just one of several properties sold or traded between two parties. In such cases, the price paid for any particular piece isn't its market 'value' (with the idea usually being, though, that all the pieces and prices add up to market value of all the parts) but rather its market 'price'.

Intellectual property
Intellectual property is hard to assess as collateral. The collateral value depends on whether the holder of intellectual property is a going concern (존속기업/存續企業) or liquidating business (청산기업/淸算企業). So a new beginner with few business operation records may be excluded from financial availability. In general, the acquisition cost and/or the replacement cost will be taken into consideration for the assessment of intellectual property in case of the highest and best usage as well as its market potential. Therefore, the probably increasing value of intellectual property in line with improved performace should be assessed properly in the security documentation.

Here are three methods employed solely or jointly for the valuation of intellectual property:
 * Cost approach (비용/費用 접근법) is useful for reproduction or replacement. But it cannot see expected cash flow, market structure, and risk factors.
 * Market approach (시장/市場 접근법) usually compare the values of like-assets in a free market. In case of scant property, it is useless.
 * Income approach (수익/收益 접근법) is based on the economic revenue related with the intellectual property taking the net present value (NPV) of collateral lifecycle into consideration. But it is difficult to estimate the future cash flow, uncertainty and risk factors.

In order to supplement the forgoing problems, the following methods may be employed additionally: Most of all, it is important to select an appropriate method for the appropriate value in appropriate circumstances.
 * Activity based costing method (활동기준 회계법);
 * Re-creation cost method (재작성비용 계산법);
 * Discounted cash flow method (현금흐름 할인법);
 * Technology factor method (기술요소법); or
 * Contingent valuation method (옵션가치 평가방식).