It is not uncommon for business valuation and real
estate appraisal experts to be retained concurrently in
expropriation proceedings. If a business is operating on
land that is required for a public project, it’s possible that
the property owner will suffer from both business losses
and a loss of property value.
Business Valuation vs Real Estate Appraisal
Generally, business valuators are retained to opine on
two types of losses. One is the loss of business value that
occurs when there is a full taking of land and it is not
possible to relocate a business operating on it. The second
type is business losses, which could result from a full
taking of land where it is possible to relocate a business, a
partial taking of land, or, sometimes, no taking of land (as
a result of nearby construction activities for example).
On the other hand, real estate appraisers are retained to
determine the market value of land taken for a full or partial
taking or to determine the decline in the market value of the
remaining land where there is a partial or no taking of land
(sometimes referred to as injurious affection).
Significantly, even where there is no taking of land,
compensation for injurious affection may still be
available if damages were suffered as a result of
construction or other expropriation related activities.
For example, if a business is located adjacent to a
roadway construction project, the value of that property
can be impacted as a result of the construction.
Moreover, if the construction makes it difficult for the
business to operate normally, business losses can also
become an unfortunate result.
Need for Consistent Assumptions
Both business valuators and appraisers have a duty to
the adjudicator to impartially assist in determining
the monetary compensation that would put a claimant
back in the same economic position as it would have
been in absent the expropriation. In fulfilling this duty,
the compensation calculated by business valuators
and appraisers should be based on a consistent set of
assumptions to avoid issues like double counting. These
assumptions often require coordination between the
business valuators and the appraisers.
Coordinating business valuation and real estate appraisals in expropriations
BY PREM LOBO, CPA, CA, CBV AND CATALINA ANGHEL, CPA, CA, CBV
AVOIDING DOUBLE COUNTING IN COMPENSATION