FFE Appraisal Role in Eminent Domain

Alright - so you are a business owner, and you have just been notified, that the City wants your property. How can this be possible? After all, this is America, home of the free, land of the brave - right? The business owner has rights? Let me just say, up front, that the utilization of the laws of eminent domain, in my way of thinking are appropriate - IF the end result is toward the improvement of all mankind. And that is a big IF. The term - mankind - is very broad. If the business owner is at a loss - how can it be for the improvement? It seems a contradiction.

As the population (mankind) expands, it naturally expands beyond its own infrastructure, that is public service utilities (underground services, overhead services, roadways, airport runways, railways, pipelines - right-of-ways). As a consequence of growth, the public demands an increase of capacity of these infrastructures. When the demand finally gains sufficient momentum, then action is taken, often under the laws of eminent domain. This is a basic principle of supply and demand.

Therefore, the public demands a better transportation system, better roadways. Wider, more lanes, more efficient exits and entrance ramps, smooth traffic flow, less congestion, and on and on. When the public agency plans for one or all of these, often in impacts the business owner. The business owner has certain rights under the same law. I have had discussion with second and third generation of business owners that can not believe that their lively-hood can be taken so easily. At risk is an investment particularly at the expense of the business owner. To the business owner, furniture fixtures and equipment is of particular prominence and importance.

First an opinion of value of the property must be calculated. In order for the public agency to compensate the owner(s) for their "loss" an understanding of these values must be determined. This calculation is derived from three appraisals:

1. Real property value - the land and the building. This is provided by a Real property Appraiser. If you lease the property this value does not apply to you. The agency will be negotiating with the property owner based upon valued provided by the Real Estate Appraiser.
2. Business Valuation - the "good will" of the business. In general, this value is the revenue generated by the business on an annual basis. The Business Valuation Appraiser is retained when there is a "loss of good will" claimed. This is a claim made by the Business Owner, and negotiated by and with the Business Owner.
3. Furniture Fixture and Equipment Appraisal - not land or building, not "good will" - BUT - everything else. The FF&E appraiser when assigned a task to appraise, for eminent domain purposes, in general, is interested in the attached equipment, leasehold improvements and signs. Movable equipment values should be determined if there is a loss of good will claimed, or anticipated claim of loss of good will.

The role of the FF & E appraiser is in two steps. First identify all furniture, fixtures and equipment (known as the field inspection). This identity should include, where possible: proper name of equipment, manufacture, model number, capacity, description, serial number, age, condition, useful age remaining, and any other specification that may assist in the identity or value determination. The appraiser should note, as necessary, any significant type of obsolescence that may be occurring, or have occured (physical, functional or economic obsolescence). This inspection occures on the premises of the actual business. The business owner may occumpany the appraiser during the inspection. Often, depending on the size of the business, the physical inspection may take days to accomplish.

The second step is: determining an opinion of value. This process is the greater of the two steps. All of the data that has been compiled during the field inspection in most cases are given three values. These values are: New Replacement/Reproduction Cost, Fair Market Value and Liquidated Value. A typical small business will generally be composed of 150 to 250 items. This equates to 450 to 750 value calculations. The rule of thumb is every day in the field equates to three days in value determination. The opinion of value determination is a result of research.