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Business Value Allocation - Impact On Sale Price

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Joined
Jun 2, 2007
Professional Status
Certified General Appraiser
State
Florida
I haven't been able to get a straight answer from dental practice brokers, and I don't think that it's because they know and aren't sharing. There are many variables and I know all tax situations are different, but all other factors remaining the same would you think that the allocation to real estate "mostly" be closer to market value, weighted lower, or weighted higher in the overall purchase of the business and realty?

I've been involved in many of these transactions as the real estate appraiser, and sometimes they wait to see what the appraisal says to finalize the allocation, even when there's a contract price specified. I also find sales that involved businesses tend to have a "normal" negotiating margin, suggesting to me that the realty wasn't over- or under- allocated since they don't know for certain when listed whether it will sell with the practice.

I don't do business valuation so put my blinders on and make sure that if a business-purchase was involved in my sales business value and FF&E were at least allocated separately.
 

Michael S

Senior Member
Joined
Mar 18, 2009
Professional Status
Certified General Appraiser
State
New Mexico
I haven't dealt with any sales of medical office buildings where business value allocations were an issue (at least none that I knew about). I have appraised a few veterinary clinics recently and in one case the younger veterinarian was buying out the practice (and real estate) from the older veterinarian. My appraisal was being used for a loan as well as establishing the price for the real estate. In that case the business value had already been established at something like $350,000 and I appraised the real estate at about $250,000. Some of my comps were similar situations and without talking to the broker/buyer/seller there's really no way to know if the reported allocation is accurate. I would think that if there was an appraisal then the real estate value would be more likely to be closer to market value with the negotiations mostly based on the business value.
 

NachoPerito

Senior Member
Joined
Jul 25, 2012
Professional Status
Certified General Appraiser
State
Washington
I haven't ever had the issue of business value come up with the sale of dental clinics. They are always purchased separately here.
 
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