Valuation and Appraisal – Key Words and Concepts Explained

Understanding Key Words and Concepts Protects Your Investments

What Determines Investment Value?

Financially speaking, “investment value” or “appraised value” have their own meaning. They differ from “personal asset value”, “family asset value” “historical asset value”. Investment value and appraised value are objectively defined; they are non-emotional, and item-specific. To determine the current financial worth of an asset, specific rules and standards are followed.

Examples of key words and concepts are: 
• Valuation – the act or process of determining the value of an asset 
• Valuation Approach – a way of determining the value of an asset 
• Valuation Date – the exact date that the valuator’s opinion applies (also referred to as “Effective Date” or “Appraisal Date”) 
• Valuation Method – ways to determine value, approaches, specific ways to determine value 
• Valuation Multiple – see Valuation Ratio 
• Valuation Procedure – the act, manner, and technique of performing the steps of an appraisal method. 
• Valuation Ratio – a fraction in which a value or price serves as the numerator and financial, operating, or physical data serves as the denominator. 
• Value to the Owner – a personalized opinion of value 
• Many techniques can be used to determine value. The most frequently use is a valuation ratio. It is a measure of how cheap or expensive an asset is compared to some measure of income, profit, or yield.


In the financial world the term yield describes the amount in cash that returns to the owners of an investment asset—a promissory note in this case. Normally it does not include the price variations. Yield applies to various stated rates of return on stocks, fixed income instruments (promissory notes, bonds, notes, bills), and some other investment type insurance products (e.g. annuities).

It can be calculated as a ratio; it will state the owner’s total return.

Valuation Ratio

A valuation ratio is calculated by dividing the cash-flow generated by the asset by the price paid for the asset. That ratio or percentage yield is used to make comparisons with other similar investments. It is use to answer the question: “What yield should this asset earn to make it a comparable investment asset to a benchmark asset”? A valuation ratio compares the cost and the benefits of an asset to the cost and benefits of some other asset to learn or to decide which the better investment is.

• Example: The annual cash-flow (yield) of a promissory note is… $ 1,140.00

The purchase price of the promissory note is… $ 9,500.00 
= 12.0% yield

Based on its 12.0% annual yield, this note can now be compared to any other note and/or other investment asset that yields more or less or the same. It is a universal way to compare “apples with apples” in the investing world. It is a way to compare the value of one financial asset to another using a common link-the annual yield.

Additional Factors Affecting Value

Yield is the primary consideration when comparing two potential investments; but, there are additional factors that must be evaluated to arrive at a prudent decision. Risk, duration of the investment, location of the asset, marketability and illiquidity, financial strength, credit-worthiness all play important parts in determining the final valuation.

Lawrence (Larry) Tepper specializes in the valuation and appraisal of promissory notes, mortgage notes, and cash-flow instruments nationally. Nation-wide services for banks, trust companies, self-directed IRA accounts, estates, attorneys, CPAs, and individual investors.

Consulting Services-Free Appraisal Price Quotes

Law Degree /Accounting Minor University of Denver 
Managing Colorado Real Estate Broker– Promissory Notes Specialization 
Certified Commercial Investment Member from the National Assoc. Realtors (CCIM)

35 + years of national promissory note and mortgage note appraisal and valuation for Banks, Trust Companies, Attorneys, CPA’s, Estates, Trusts, Executors, Administrators, and Financial Advisors.

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