How to value an appraisal business

[chris11]

Hi guys,

I was wondering if anyone in here has any experience or knowledge on valuing the going concern of a commercial appraisal company. Any thoughts, ideas, tips would be much appreciated.

Thank you.

 

[Elliott]

Twenty years ago I bought out my partner for about 50% the annual gross and paid it off over 4-years. It worked out for me, but I think every market is different. Its all about competition and supply/demand.

 

[Terrel L. Shields]

Considering the state of affairs, I might ask how much would I have to pay to get someone to take it off my hands.

Seriously, most close held businesses tend to sell for approximately 50% to 150% of annual receipts depending upon the net potential. I'd venture that 2-3x the NET income (including the owner's profit and labor) would be a typical price. I know a couple of veterinarians who sold in that range. So if you net $20,000 and paid your self $50,000, you might get $140,000 - 200,000 or so. I know one appraiser with 4 trainees who sold for $240,000 and the buyer went under a year or so later.

Personally, I'd never buy one unless to get myself out from under a non-compete clause with my mentor. I'd rather take my chances starting up anew.

 

[chris11]

Thank you both for commenting! Much appreciated.

 

[glenn walker]

The question is what are you buying ?

 

[Tim The Enchanter]

My business without me?

Let's see, a couple old computers, an old camera, an even older desk, and office equipment and supplies fit for Salvation Army donation.
Yep. Doodley squat, without me. I'm the man!

 

[Michigan CG]

Hi guys,

I was wondering if anyone in here has any experience or knowledge on valuing the going concern of a commercial appraisal company. Any thoughts, ideas, tips would be much appreciated.

Thank you.

There is a WHOLE LOT of it depends in this situation.

I am a CG appraiser and I have two part-time assistants. I am small-time but kind of the one of the larger fish in my small pond (market). Most of my work is residential and I do some small commercial and farm work.

My business is worth next to nothing even though over 60%, maybe 70% of my work is private and my lending work has no AMC clients. Most would think that is good and it would be worth something. The majority of my work I get is because it is MY signature and not someone else's signature.

I have about 30 clients that order from 1 to 30 reports a year; I have three attorneys that exclusively use me and others who use me sometimes. I work for six townships; I am their appraiser for tax appeal and other uses. I have two insurance companies that order from me. Normally, between the two I get one order a year but in 2019 I got five. Those pay very well.

If I were retiring tomorrow and someone offered me $20,000 I would take it in a hearbeat.

But a successful commercial shop can have a lot of value. I refer most commercial stuff to an MAI company proximate to me. They have people who are really good at some specialized properties and that is valuable. BUT, the person buying that company would need to know that those appraisers who can bill $10,000 assignments would stay with the company.

As with every company, and every question, the value depends on what they can offer and the viability of the future income.

 

[Overimprovement]

The majority of my work I get is because it is MY signature and not someone else's signature.

This is the most relevant issue. I used to underwrite commercial loans at a big bank and dealt with this type of thing from a financing perspective. If we are talking a one person shop, then as you know you are only purchasing the client list. All the 'work' or income-generation, would be gone, and left up to the new owner (you). So it comes down to what is that book of business worth. 1) Could you obtain the same work/clients yourself directly? 2)And if not, would they even work with you? They have 5 existing appraisers they rotate through. Losing one might be no big deal. Or they may be suddenly lost without this appraiser.

The other issue is what is happening to the person selling the appraisal business? Are they simply selling the name and will continue doing local appraising? If so, I would venture the business name itself is quite worthless. And if not, can you be certain that they won't continue to appraise? Is there an iron-clad non-compete that will come in the mix? Are they willing to personally speak to and transition all their clients over to you?

Lots of questions, just remember for a service business, really only the client list itself carries any value. And the value it has to the existing owner may not be the value it has to the purchaser.

 

[Russ Kitzberger]

I suggest talking to a few business brokers in your area. You may also want to look at other businesses (competing areas or professions) that are similarly situated to determine a capitalization rate or methodology.

Foremost with any micro business you need to determine what the amount of salary would be to replace the owner with a similar professional and include that salary in your calculations.