A Shocking Fact - A Single Promissory Note Has Multiple Values
Appraising a Single Note Using Different Types of Appraisals Produces Different Values.
Here is a list of the most popular types of values: Book Value Cost Value Cash Value Discounted Value Cash Flow Value Fair Market Value Fair Value Future Value Intrinsic Value Investment Value Inherent Value Market Value Liquidation Value Personal Value Present Value Quick Sale Value Retail Value Speculative Value Wholesale Value Each type uses a different appraisal definition.
An appraiser who is experience and competent will arrive at a different value for the same promissory note, depending on the definition used.
There is not one absolute, final, perfect appraised value for any one promissory note.
Beauty is in the Mind of the Beholder To understand why the same promissory notes can have multiple values to different appraisers, listen to four individuals looking at the same new car in a showroom: #1 says "what a beautiful car"; #2 says "it looks like a tank to me"; #3 says "it seems overpriced to me"; and #4 says "it's too small for my family".
The value and desirability of a 2013 Range Rover car to a family with four young children living in rural Nebraska would be very different from its value to a single lady living in Brooklyn, NY.
The concept of the same note having different values to different investors is the same concept that causes the same car to have different appeals to different buyers The Same Note Has Multiple Values As an example, assume you own a $25,000.
00, 5% interest, 8 year term promissory note in your retirement account.
Its face value is $25,000; you bought it at a discount for $19,500; it was recently appraised for $22,500; you just received a cash purchase off of $18,500 from another investor; and a speculator is willing to pay you $16,500 cash.
This is a common example of five values for the same promissory note.
Appraisal Value Factors Considered by the Appraiser Because there are so many factors that influence value, we will only consider the five most important here.
The five key factors are: 1.
Confidence--that the borrower has the ability to perform the promises made.
2.
Trust--that the borrower has the intent to perform those promises.
3.
Collectable-if default occurs, the legal right to collect exists.
4.
Enforceability-if default occurs, the court will enforce the note's terms.
5.
Marketability-if cash is needed, the note can be sold for cash easily.
Summary Having absolute confidence that a borrower has the ability to perform is impossible; the borrower's circumstances can change over time; the economy can change; the laws can change.
The best that can be had is "reasonable confident.
Here, experience, common sense, and good judgment are critical.
Having absolute trust that the borrower has the intent to perform is equally impossible.
We cannot read people's minds and determine their real intent.
The best we can do is review their past behavior and performance and use that to predict their future behavior.
Having the absolute legal right to collect the debt, and predicting the enforceability of the loan documents, is not possible.
It is an almost certain probability, if the documents were drafted properly by an experienced attorney.
Having absolute confidence that a private promissory note can be quickly and inexpensively sold for cash at some future date is impossible.
There are too many unanticipated and uncontrollable variables affecting its future value to predict a future cash price.
The best estimate will be a range of values, not a specific cash price.
Here is a list of the most popular types of values: Book Value Cost Value Cash Value Discounted Value Cash Flow Value Fair Market Value Fair Value Future Value Intrinsic Value Investment Value Inherent Value Market Value Liquidation Value Personal Value Present Value Quick Sale Value Retail Value Speculative Value Wholesale Value Each type uses a different appraisal definition.
An appraiser who is experience and competent will arrive at a different value for the same promissory note, depending on the definition used.
There is not one absolute, final, perfect appraised value for any one promissory note.
Beauty is in the Mind of the Beholder To understand why the same promissory notes can have multiple values to different appraisers, listen to four individuals looking at the same new car in a showroom: #1 says "what a beautiful car"; #2 says "it looks like a tank to me"; #3 says "it seems overpriced to me"; and #4 says "it's too small for my family".
The value and desirability of a 2013 Range Rover car to a family with four young children living in rural Nebraska would be very different from its value to a single lady living in Brooklyn, NY.
The concept of the same note having different values to different investors is the same concept that causes the same car to have different appeals to different buyers The Same Note Has Multiple Values As an example, assume you own a $25,000.
00, 5% interest, 8 year term promissory note in your retirement account.
Its face value is $25,000; you bought it at a discount for $19,500; it was recently appraised for $22,500; you just received a cash purchase off of $18,500 from another investor; and a speculator is willing to pay you $16,500 cash.
This is a common example of five values for the same promissory note.
Appraisal Value Factors Considered by the Appraiser Because there are so many factors that influence value, we will only consider the five most important here.
The five key factors are: 1.
Confidence--that the borrower has the ability to perform the promises made.
2.
Trust--that the borrower has the intent to perform those promises.
3.
Collectable-if default occurs, the legal right to collect exists.
4.
Enforceability-if default occurs, the court will enforce the note's terms.
5.
Marketability-if cash is needed, the note can be sold for cash easily.
Summary Having absolute confidence that a borrower has the ability to perform is impossible; the borrower's circumstances can change over time; the economy can change; the laws can change.
The best that can be had is "reasonable confident.
Here, experience, common sense, and good judgment are critical.
Having absolute trust that the borrower has the intent to perform is equally impossible.
We cannot read people's minds and determine their real intent.
The best we can do is review their past behavior and performance and use that to predict their future behavior.
Having the absolute legal right to collect the debt, and predicting the enforceability of the loan documents, is not possible.
It is an almost certain probability, if the documents were drafted properly by an experienced attorney.
Having absolute confidence that a private promissory note can be quickly and inexpensively sold for cash at some future date is impossible.
There are too many unanticipated and uncontrollable variables affecting its future value to predict a future cash price.
The best estimate will be a range of values, not a specific cash price.
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