Buying a small appraisal business....

[CCAAMO]

I would base the price based on the current revenues but for each of the next two years the price would be adjusted downward based on the percentage of clients (or revenues ) which stay with you after the owner's leave. You don't want to be in a position where you buy it and 1/2 the clients leave.

 

[tdw.375]

Not enough information about the business to give any opinion but your in the driver's seat because most likely there's nobody else that will purchase it.

We are a small business in a rural market. We have a regular client base, both AMCs and some local banks that have their own lending departments that don't use AMCs.

My concern (along with the future of the profession), is how many clients would stay on after the transition. The goal right now is too ensure my name is on the bulk of the orders (sludging up hill with that one) to ensure that continues after the sale.

We are still a year out from that process, at a minimum, so this is really just exploratory.

The original number proposed seemed reasonable based on annual income, but when factoring in the business is really driven by the owners name, it puts a kink into things and, in my opinion, drives the price down. The obvious concern, as many of you have stated, is that when the transition happens, I loose orders.

I'm leaning towards a proposal that relies on a percentage rather than a lump sum, simply due to the unknowns of the appraisal industry and the amount of orders that may or may not continue. This would also provide some incentives for the current owner to ensure plenty of orders get put in my name. They've been in business for 30 years and have a great relationship with their clients, so hopefully they can do their part with their contacts.

Thanks for all the feedback and thoughts on this

 

[nauthead]

Exactly what are you buying? Does it come with FF&E, phone numbers, maybe a website or just appraisal files and clients who may or may not stay with you once the business changes hands?

 

[DTB]

If you are in a rural market and the business closes, who would they use?
If you buy the business, can you out compete with the answer above?

 

[Zoe]

Has the owner been working from home? Have you completed any appraisals and cosigned with the owner? I like the joint ownership idea but I am just wondering if you are coming in because he or she is already established and wondering if anybody they deal with has been seeing your name on reports. Are you changing the name of the appraisal company/business?

If you have been cosigning with them, then you would have good relationship with their clients. If you were doing most of grunt work and on a fee split, you would know their clients.

Idk. Think about what percentage of estimated income over next 2 -3 years and maybe stagger what you are willing to share with owner.

You know you want income/expense records for last 2-3 years. Income/expense records for last 2-3 years will help you forecast income/expense for next 2-3 years and see if you can buy it over a 2-3 year period with % of gross revenue.

If gross revenue falls, then the cost of buying goes down on your end. If gross revenue increases, the cost of buying goes up on your end.

I'll throw hypothetical out. I'll pay you 10% of gross revenue year one, 8% year 2 and 5% year 3. Those are purely speculative percentages.

You probably want a lawyer to draw up the purchase contract. I would want a lawyer to draw it up. My lawyer. The seller could agree with the contract or not.

 

[J Grant]

We are a small business in a rural market. We have a regular client base, both AMCs and some local banks that have their own lending departments that don't use AMCs.

My concern (along with the future of the profession), is how many clients would stay on after the transition. The goal right now is too ensure my name is on the bulk of the orders (sludging up hill with that one) to ensure that continues after the sale.

We are still a year out from that process, at a minimum, so this is really just exploratory.

The original number proposed seemed reasonable based on annual income, but when factoring in the business is really driven by the owners name, it puts a kink into things and, in my opinion, drives the price down. The obvious concern, as many of you have stated, is that when the transition happens, I loose orders.

I'm leaning towards a proposal that relies on a percentage rather than a lump sum, simply due to the unknowns of the appraisal industry and the amount of orders that may or may not continue. This would also provide some incentives for the current owner to ensure plenty of orders get put in my name. They've been in business for 30 years and have a great relationship with their clients, so hopefully they can do their part with their contacts.

Thanks for all the feedback and thoughts on this

Why does the owner's name have to retire after they sell the business? Do the orders come in to X name appraisal company, and you are the appraiser who does the work? Do these partners sign on and supervise your reports, or is it your name alone that signs the appraisal?
Some of that might answer which clients would stay on if they sell the company to you. Maybe they could stay on as silent partners -as I suggested and others have as well, base it more on a monthly percent to them over X limited years - if the business declines, the amount they get would decline - idk what they area charging to sell the business - 10k and done is okay, 100k not so much.

 

[sputnam]

Physical assets, receivables, the name and reputation. Not much else of value in an appraisal business. One thing to consider, if it's taking 3 of you to do the work... including administrative... how are you going to do that by yourself?

 

[Zoe]

Yeah, you haven't revealed enough for us to help you.

 

[Zoe]

If you did your purchase agreement on % of gross revenue based on last 2 or 3 years income/expense statements, then you would have to project next 2 or 3 years gross revenues and how you might change expenses and revenue.

 

[Terrel L. Shields]

I know a biz or two (not RE Appraisal) that sold for value of the real estate and store stock plus 3 x the NET income before income taxes.