For a federally related loan on an operating hotel, the appraiser reports the going-concern value, including furniture, staff and brand-related intangibles, and labels it the market value. Under the Interagency Appraisal and Evaluation Guidelines, how should the institution view this?
Correct Answer
C) Not acceptable as market value, though it may be reported separately
The Interagency Guidelines say value opinions such as going-concern value or value in use may not be used as market value for federally related transactions. They may still appear as separate opinions if clearly identified and disclosed. So the report cannot call the going-concern figure market value, but it is not barred from showing it separately.
Why This Is the Correct Answer
Option C is correct because the Interagency Guidelines state that going-concern value, value in use, or a special value to a specific user may not be used as market value for federally related transactions. They also allow separate opinions of such values if clearly identified and disclosed, so the figure can stay in the report under its own label.
Why the Other Options Are Wrong
Option A: Acceptable, since going-concern value is the hotel's most probable price
Option A treats going-concern value as the hotel's most probable price. Going-concern value includes the business, its personal property and intangibles, so it is a different value from the market value of the real property and may not be used as market value here.
Option B: Acceptable, if the report also states the value in use of the hotel
Option B makes the label acceptable if value in use is also reported. Value in use is another value type the guidelines bar from being used as market value, so adding it does not cure the problem.
Option D: Not acceptable, because going-concern value may not appear in the report
Option D says going-concern value may not appear in the report at all. The guidelines allow separate opinions of such values so long as they are clearly identified and disclosed; the problem is only calling it market value.
Separate label, not substitute
Going-concern and use values may ride along in the report, but each needs its own label. They may not be used as market value on a federally related loan.
How to use: Use this when a question asks whether a non-market value type can be reported as market value for a regulated lender.
Exam Tip
Watch for options that overstate the rule; the guidelines do not forbid reporting other values, they forbid passing them off as market value.
Common Mistakes to Avoid
- -Reporting the operating business value as the real property's market value
- -Assuming any non-market value must be left out of the report entirely
Concept Deep Dive
Analysis
This question tests the line between market value of the real property and other value types in federally related lending. Going-concern value covers the whole operating business, including personal property and intangibles. The guidelines bar using it as market value but allow it as a separate, clearly identified opinion, so you must choose between an outright ban and a labeling rule.
Background Knowledge
Going-concern value is the total value of an operating business enterprise, including real property, tangible personal property and intangible assets. Federally related transactions require an opinion of market value as defined in the agencies' regulations. Other value types can be reported for information but must be clearly separated from that market value.
Real-World Application
A bank orders an appraisal of a branded hotel. The appraiser reports the market value of the real property as required and, in a clearly labeled separate section, the total going-concern value including furniture, fixtures, equipment and business intangibles.
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