The famous artist Salvador Dali is quoted as saying “What is important is to spread confusion, not eliminate it.” While this may be so in art, it is unlikely to be the mantra of any valuation practitioner. Valuation is practiced by thousands of individuals, and it is important that these practitioners all speak the same language so the clients who rely on these valuations can make unified and reasonable decisions. Problems arise, however, when similar language is used to mean different things to different people. Such is the case in business valuation and real estate appraisal. Generally, real estate appraisers and business valuation practitioners do not venture into each other’s territory. However, there is often good reason to do so, and these situations highlight the importance of consistency, particularly with respect to the use of language and the interpretation of language. For example, based on our own experience, the term “ unleveraged Internal Rate of Return [IRR],” as used by real estate appraisers, has been misconstrued by business valuation practitioners. This article addresses the conflicting use and misuse of “ unlevered IRR” by real estate and business appraisers.
