If there is one common mistake appraisal agents often make, it’s that they fail to classify or separate intangibles in personal property to tangible personal property. This can lead to a miscalculation of a property’s value and you’ll likely be losing money by paying too much or not paying enough.
But to fully understand the berth of intangibles, how does it differ to tangible property?
What are Commercial Property Intangibles?
Colloquially, intangibles are something you can’t touch or does not have any physical presence. In tax and real estate, it’s really a lot like that. It’s something other than physical properties such as lands and building structures.
A few examples of intangible properties are a leases, accounts receivable, your money in the bank, or any intellectual properties such as trademarks and patents. Business value is also deemed as an intangible property.
Suffice to say, intangible properties are not taxable, and therefore, should NOT be included in appraising a property’s value.
However, this continues to be a part of the norm.
Two Types of Intangibles
Intangible properties can either be classified as definite or indefinite.
Basically, indefinite tangible properties last a lifetime; or at the very least, while the business is running. For example, a company’s name and brand is indefinite given that it will stay with them as long as their business is running.
Meanwhile, definite properties are short-termed or will no longer be a part of the company once an action is done or the agreement is expired. For example, a company created a legal agreement with another company to work on their pattern for a certain amount of time without any intentions of extending. The agreement will be classified as a definite intangible property.
Intangibles, whether definite or indefinite, often does not have any value to a company. However, these can help them in the course of their journey to success. A sample of this is a company’s logo. How they create it and use it for marketing could make the difference in whether they will be easily acknowledged by their loyal customers or not.
Why are Intangibles Separated?
Intangibles should not be a basis of how much a property should value.
Imagine a building is selling and that you are leasing for 30 years to a big company such as Apple. You wouldn’t be having any problems given that you know they will be able to pay for the lease, no matter how long it might be.
Now if you take an unknown and fairly local and small company. Let’s say it’s a one-man business, you wouldn’t be as keen and as fast with your choice given that their credit is not the same with Apple.
And there is also the matter with stores and the land they are were located. It will take at least $200 per square feet to build a chain but if they fail, the per square feet will be valued less for around $80 to $150. The credit should not be counted when you are valuing the property.
A clear grasp on this concept can help you appraise your property more accurately and reap more dividends in the future. Doing your work and due diligence pays off – especially when it comes to real estate.
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