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The Handbook of Advanced Business Valuation.

Edited by Robert F. Reilly and Robert P. Schweihs. McGraw-Hill, a division of the McGraw-Hill Companies, New York, NY 512 pages, hardbound.


Business appraisers do a lot more than value real estate-related going concerns. Both the diversity of their work and its complexity are illustrated in this comprehensive anthology. Real estate appraisers searching for areas in which to expand their practices will find this book an eye opener. Of the 24 chapters, only two deal with real estate valuation, and those only tangentially. The others cover various complex business valuation topics. Most real estate appraisal publications dealing with business enterprise valuation typically address real estate going concerns with a small business component. In this handbook, the topics involve business valuations in which the real estate, if it exists at all, is a minor component at best.

The book is a compilation of essays, most of which appear to be original for this publication. It is organized into four sections, each progressively more specific. Part I covers topics that apply to most business valuations. Included are a couple of articles on estimating the appropriate cost of capital, the first written by Shannon Pratt, to whom this book is dedicated, and the second on international cost of capital considerations. Part I also includes an article on equity risk premiums, and two on quantifying various valuation discounts. Real estate appraisers will be able to relate to these concepts, as they are similar to our own income capitalization concepts, despite differences in symbols and terminology. (These differences, which occur throughout the book, are sometimes rather colorful, examples include the "yardstick approach" and the "but for" method, as in, "what a business would have earned 'but for' the legal violations of the defendant.")

Part II, entitled Special Applications, includes essays on S corporation valuations, family limited partnership valuations (FLPs) and in-process research and development valuations (IPRDs). Although this is more than enough information to get an accountant's juices flowing, there really is not a lot here for real estate appraisers.

Part III, which is the largest section of the book, deals with specific-purpose valuations. Covered are estate planning, employee stock ownership plans (ESOPs), and fairness opinions, among other issues. Two of the chapters in this section would seem to be of particular interest to real estate appraisers, one on ad valorem taxation and the other dealing with economic damages. The former held promise for insights into proper allocation of going concerns with a significant real estate component; but, unfortunately, it has little to offer in this regard. The latter includes some litigation valuation concepts, but is unlikely to be of much interest or help to real estate appraisers.

The book's final section is entitled Special Issues Related to Valuations in Specific Industries. It includes very interesting articles on sports team valuation, focusing on the four major leagues (NFL, MLB, NBA and NHL); automobile dealerships, including such insights as the fact that most well run dealerships operate on after-tax net income of less than 2% of total revenue, which illustrates the importance of skilled management; radio broadcasting companies; physician practice valuation; closely-held government technology service firms; and emerging growth companies, which is a particularly relevant topic given today's economic environment.

The authors assembled for this work are a credible mix of attorneys, accountants, and business valuers. They have targeted the material to their peers and clients. Real estate appraisers will not find the book particularly useful to a real estate valuation practice, and may be scared off by the level of complexity. It does, however, offer insights into the world of business valuation, and will hold interest for adventurous real estate appraisers exploring ways to broaden their practices.
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Title Annotation:Review
Author:Lennhoff, David C.
Publication:Appraisal Journal
Article Type:Book Review
Date:Oct 1, 2000
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