Looking at how it is that the tangible ‘worth’ of an asset is such an arbitrary process from a lender’s perspective, it is important that a borrower take as much of the valuation process into their own hands as possible before submitting a loan application. By professionally appraising assets within the general guidelines set by lending best practices, a borrower is able to ensure that their net worth is recorded properly by the lending institution, and that they are in the best position to plan for the application itself.
While a valuable asset with a great deal of intangible value will not generally be recognized by a lender as adding to a borrower’s tangible net worth due to liquidity constraints, a borrower is able to provide documents to the lender that prove the tangible worth of specific assets. By hiring a professional appraiser for a small fee, a borrower stands to save thousands of dollars in future interest payments because of the way in which the appraisal creates a formal record of tangible worth for a bank to depend on.
These documents are generally deemed to be relevant for as much as a year after the actual assessment (unless major economic events would indicate otherwise), and can even allow a borrower to use an ‘intangible’ asset as a form of collateral against a loan.
A professional appraisal of an intangible asset provides value to a loan application by proving the tangible value of that asset. This is usually accomplished by proving the demand, liquidity, and stability of the worth of the asset. While this amount will be different from the actual intangible value of the asset itself, which can only be truly assessed and realized by selling the asset, it will determine what amount of tangible value could be realized by a financial institution in the event of liquidation.
By taking into account the specific market conditions in which the asset participates, as well as the particular nuance of the asset itself, an appraisal determines just how much of a market exists for the asset, as well as what aspects of the product are of actual value, allowing the bank the confidence to lend against it.
Another strategy that can be pursued by borrowers it to sell the intangible asset, so as to realize the full value of the intangible worth, as opposed to the smaller tangible amount. This can be done in one of two ways. Firstly, a borrower may choose to sell the asset as a whole, and realize the complete value of the asset.
This is best done for assets without much underlying tangible value, such as collector’s items and heirlooms (thus the recent popularity of ‘cash for gold’ services). Alternatively, a borrower might actually be able to realize a greater amount of value from their asset by breaking it down into its parts and selling them individually.
For example, many people have found that the complete values of their computer parts are worth more than their complete amounts. By taking apart a computer and carefully selling the individual pieces at a greater net worth, a borrower is able to realize a greater net worth on a seemingly depreciated asset. However, borrowers should be careful to investigate what kind of market conditions exist for the individual parts of the asset, so as to ensure that each individual part can be sold in a way that maximizes value. While time intensive, the due-diligence can sometimes prove to be worth the investment.
