Valuation Strategies published an article on the debunked Cost Approach by members of Somerset CPAs and NACVA’s Value Examiner a similar piece by Blue & Company. Over the course of the next several weeks, I will further debunk this Bunk. The abject foolishness and lack of understanding of the requisite motivation of the hypothetical buyer/seller displayed in these pieces as well as the disregard of professional and regulatory standards is not mitigated by their appearance in print and is a disservice to the healthcare industry and appraisal community.
Let me start the debunking here by saying that the rate of return of a hypothetical buyer/seller is not influenced or defined by the motivations of a specific buyer, as suggested in the Valuation Strategies piece. In fact, as any good student of valuation texts realizes, hypothetical investor motivations rarely coincide with strategic investor motivations; when they appear to, it is required of the appraiser to apply the standard of value spelled out in the Stark regulations where fair market value is specifically constrained and modified. Any appraiser unfamiliar with these modifications, or unwilling to apply them, has no business offering appraisal services to the healthcare industry. Pathetically, the Valuation Strategies piece makes not a single mention of these rules nor of those from the IRS on use of the Income Approach or the Community Benefit Standard.
The world is not flat, nor do the stars rotate around the earth, and ignorance is not bliss.
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