Acceptance of Appraisal Values on Financial Statements

PURPOSE: This rule sets forth who is eligible to submit an appraisal of financial statement items, what items may be appraised, who may prepare an appraisal, what an appraisal must contain, the definition of fair market value, how often an appraisal must be submitted, and how an appraisal will be discounted. (1) A grain warehouseman holding a Missouri public grain warehouse license or an applicant for a Missouri public grain warehouse license may submit an appraisal of fixed assets, that is, land, buildings, and equipment, for consideration in computing net worth. However, if at any time the director determines that a serious cash flow problem exists, or that current liabilities far exceed current assets, the director may disallow the use of an appraisal in computing net worth. (2) An appraisal must be submitted by an individual or company competent and experienced in conducting appraisals and in making assessments of the fair market value of fixed assets as land, buildings, and equipment. (3) If only land is being appraised, the appraisal may be completed by a real estate salesperson or broker licensed with the Missouri Real Estate Commission or with a comparable commission of another state. If land is appraised by a real estate salesperson or broker, the appraisal must include at least two (2) quotes of recent sales of similar land in the same geographic area. In the absence of recent sales in the area, this requirement may be waived by the director. (4) If only transportation or farm equipment is being appraised, the appraisal may be completed by an equipment dealer with experience in appraising transportation and farm equipment. (5) If a grain warehouseman holding a Missouri public grain warehouse license or an applicant for a Missouri public grain warehouse license desires to submit an appraisal, the director may require that the appraisal be conducted by an individual or professional appraisal company holding the designation MAI (Member of the Appraisal Institute) awarded by the American Institute of Real Estate Appraisers (AIREA) of the National Association of Realtors or that the appraisal be conducted by an individual or professional appraisal company who is a member in good standing of the Society of Real Estate Appraisers (SREA). (6) For an appraisal to be considered in computing net worth the appraiser must state the estimated fair market value of the items being appraised. For the purpose of this rule, fair market value shall be defined to mean the highest price in terms of money which a property will bring in a competitive and open market under all conditions requisite to a fair sale, buyer and seller each acting prudently, knowledgeably, and assuming the price is not affected by undue stimulus. (7) If buildings, equipment, or both, are being appraised, the appraiser shall use the cost approach (replacement cost less depreciation) or the market-data approach, unless an alternate approach is approved by the director. (8) If an appraiser determines fair market value by computing the replacement cost less depreciation, the appraisal process shall include, but not be limited to, the following steps: (A) If land is appraised, the value of the land as if vacant is to be estimated; (B) If improvements on the land are appraised, the cost to reproduce (new) the existing improvements is to be estimated; (C) For the improvements, the deduction for depreciation from all causes is to be estimated; and (D) If applicable, the value of the land is to be added to the cost to reproduce (new) the existing improvements less the deduction for depreciation from all causes. (9) To determine the deduction for depreciation from all causes, the appraiser should evaluate and estimate the disadvantages and deficiencies of the existing improvements as compared with new improvements. Depreciation, when measured as a disadvantage or deficiency, may be one (1) or all of the following kinds: (A) Physical deterioration—deterioration or the physical wearing out of the property; (B) Functional obsolescence—a lack of desirability in layout, style, and design as compared with that of a new property serving the same function; and (C) Economic obsolescence—relating to a loss of value from causes outside the property itself. (10) If an appraiser determines fair market value by using the market-data approach or comparison approach, the appraiser shall determine fair market value by comparing known sales of similar properties which have occurred within a recent period of time to the subject property. (11) All appraisals must be accompanied by a statement of the appraiser’s qualifications unless the statement is already on file with the department. This statement should include the appraiser’s educational background, his/her experience in preparing appraisals, memberships in professional appraisal societies and organizations, and a partial list of past clients. (12) The appraisal must include a detailed description of the basic method or technique by which the appraised value was determined and must include a certification signed by the appraiser making the following statement: (A) The appraiser has no present or contemplated future interest in the property appraised; and neither the employment to make the appraisal, nor the compensation for it, is contingent upon the appraised value of the property; (B) The appraiser has no personal interest in or bias with respect to the subject matter of the appraisal report or the parties involved; (C) The appraiser has personally inspected the property, both inside and out, and has made an exterior inspection of all comparable sales listed in the report. To the best of the appraiser’s knowledge and belief, all statements and information in the appraisal report are true and correct, and the appraiser has not knowingly withheld any significant information; (D) If the appraiser is affiliated with an appraisal organization, the appraisal report has been made in conformity with and is subject to the requirements of the Code of Professional Ethics and the Standards of Professional Conduct of the appraisal organization; and (E) All conclusions and opinions concerning the properties that are set forth in the appraisal report were prepared by no one other than the appraiser unless otherwise indicated. (13) The appraiser may set forth all of the limiting conditions (imposed by the terms of the assignment or by the appraiser) affecting the analysis, opinions, and conclusions contained in the appraisal report. (14) To assist the appraiser in setting forth his/her qualifications, experience, and other information relating to the performance of the appraisal, the director may prepare a form for use by the appraiser. However, in addition to the appraisal form, the appraiser shall submit a copy of the actual appraisal. (15) An appraisal shall be accepted for a period of four (4) years from the date of the appraisal. However, if during the four- (4-) year period the director becomes of the opinion that there may have been a significant reduction in the value of the appraised property, an updated appraisal may be requested. Otherwise, once four (4) years has elapsed, a new appraisal must be submitted with the next required financial statement or the department shall use the book value of the appraised property. (16) The amount by which the appraised value exceeds the licensee’s basis at the time of the appraisal shall be known as appraisal surplus. This value shall be discounted thirty percent (30%) to allow for possible fluctuations in market value and for capital gains taxed that could result if the asset(s) were disposed of at the appraised value. The discounted appraisal surplus shall be added to the book value to arrive at the allowable value for the appraised assets. (17) If, during the period that an appraisal is allowed, the items included in the appraisal remain on the books or new items are added to the books, the allowable value for fixed assets will be determined by adding the original discounted appraisal surplus to the present book value. (18) If, during the period that an appraisal is allowed, some of the items included in the appraisal are removed from the books, the allowable value for fixed assets will be determined by recomputing the original discounted appraisal surplus, taking into account the items that must be removed from both the appraisal and the list of book values and adding the adjusted discounted appraisal surplus to the present book value. (19) If the book value or basis in the property cannot be determined, the director shall discount the appraisal value thirty percent (30%) to allow for possible fluctuations in market value and for capital gains taxes that could result if the asset(s) were disposed of at the appraised value. (20) An appraisal of assets will not be accepted for a period of one (1) year after that assets are purchased. AUTHORITY: sections 411.070 and 411.260, RSMo 2016.* Original rule filed Jan. 11, 1985, effective May 26, 1985. Amended: Filed March 16, 1988, effective June 27, 1988. Amended: Filed May 18, 2018, effective Jan. 30, 2019. *Original authority: 411.070, RSMo 1941, amended 1955, 1965, 1977, 1980, 1986 , 1993, 1995, 1997 and 411.260, RSMo 1939, amended 1941, 1949, 1965, 1977, 1986, 1997, 2014.