Sale/Purchase of Appraisal Practice

[Michael S]

This is an excellent podcast called Acquistions Anonymous where three experienced business buyers talk about small businesses listed for sale just using publicly available information from brokers or sites like BizBuySell. Here is an episode from 2021 where they talked about a commercial real estate appraisal business that was listed for sale: https://www.acquanon.com/1964407/10...usinesses-for-sale-acquisitions-anonymous-e52

The business was a niche practice specializing in convenience stores/gas stations. This was a practice with about 8-12 appraisers that operated regionally (maybe nationally? - I listened to this episode a few months ago so can't recall all the details).

I'm not sure if the business ever sold but the hosts brought up some good points about customer concentration, retaining employees, the durability of the income, etc. There's some aspects of the appraisal business they clearly weren't familiar with but the bottom line is the only reasonable buyer would be another appraiser.

This is about the only type of appraisal practice I could see selling. For a solo operator there is no little or no value in the business. It's a relationship with clients that won't transfer and some old files that have minimal value at best. Maybe a new appraiser would be willing to pay a few tens of thousands for trying to transfer those client relationships and just having some aspects of a business already setup - but you could spend years trying to find that one potential buyer unless it was someone you were training to take over the "business".

 

[Long Walk]

This is an excellent podcast called Acquistions Anonymous where three experienced business buyers talk about small businesses listed for sale just using publicly available information from brokers or sites like BizBuySell. Here is an episode from 2021 where they talked about a commercial real estate appraisal business that was listed for sale: https://www.acquanon.com/1964407/10...usinesses-for-sale-acquisitions-anonymous-e52

The business was a niche practice specializing in convenience stores/gas stations. This was a practice with about 8-12 appraisers that operated regionally (maybe nationally? - I listened to this episode a few months ago so can't recall all the details).

I'm not sure if the business ever sold but the hosts brought up some good points about customer concentration, retaining employees, the durability of the income, etc. There's some aspects of the appraisal business they clearly weren't familiar with but the bottom line is the only reasonable buyer would be another appraiser.

This is about the only type of appraisal practice I could see selling. For a solo operator there is no little or no value in the business. It's a relationship with clients that won't transfer and some old files that have minimal value at best. Maybe a new appraiser would be willing to pay a few tens of thousands for trying to transfer those client relationships and just having some aspects of a business already setup - but you could spend years trying to find that one potential buyer unless it was someone you were training to take over the "business".

Thanks for posting this. I listened to the c-store part of the podcast and the numbers didn't seem right. 12 appraisers generating $1.4MM annual gross revenue is low for full-time appraisers. I couldn't find the appraisal firm on Google. But Hopkins sold three years ago to Newmark and existing management looks like it is still in place. https://www.prnewswire.com/news-rel...aluation-and-advisory-practice-300987672.html. That suggests an earn-out to me.

The deeper I dig into expanding our firm's reach, the less value I see in the sole proprietor (or maybe any appraisal firm). The only exception would be for an earn-out purchase or (like you posted) access to a client that I can't get into any other way.

So, I have been thinking more lately about growth through organic expansion. Recruiting appraiser relationships. Expanding coverage areas with clients. Changing the locations where we directly market. That's a much slower path but I don't really see another successful path.

The other thought that spurred my original post was the idea of selling when I retire. The thought of turning in my license and turning off the email doesn't appeal to me. So, maybe the right approach is to develop brokerage sales and management, and property tax consulting with appraisal to become appealing to a regional or national brokerage.

 

[Long Walk]

Im really surprised anyone would consider buying a "practice". Granted 90% of us are one man shows working from home. Even a large, well established "shop" is still one "low" appraisal from being a great company to a terrible company in clients eyes. Unless they are the only game in town I can't imagine lenders would just feed them order after order if they could call around to save money or move on once "value" was missed. Some people are interested in their files and data..?? That might of been helpful before that whole World Wide Interweb fad caught on.)

There appears to be a difference between residential and commercial. I wouldn't bother trying to buy a residential practice for the reasons you gave. Commercial practices are more resilient than the picture you are painting. Number hitting isn't a real issue in commercial, IME (except for market-based as-complete and as-stabilized values in some asset classes). That may be due to cross-collateralization. Timeliness is an issue and defensibility of the report is as well. For commercial, those two factors are very important, IMO, and will cost a client relationship.

I agree with you that most practices (commercial or residential) are solo practioners working from home.

In the commercial world, the data can be valuable, especially if it is in a location that I have none and want to work. The time savings is worth more than the dollars it would cost me to buy the practice.

The real stumbling block in the sale of appraisal practices is the over-arching belief by appraisers that their practice has no value. It baffles me that people who work all day opining about value for others can not find the value in their own practices. It really makes me question the skill of the typical appraiser. When I brokered, my job was to get buyers and sellers to a meeting of the minds and that process started with me working out the price and terms that would cause a property to sell. Every property will sell in any condition at the right price and terms in arm's-length sales. Same is true for businesses. The hard part is getting the market participants to become willing to engage the market.

 

[residentialguy]

We've had forumites do that and ended in complete failure on both ends; Like when Fernando took over Normando.

 

[Long Walk]

We've had forumites do that and ended in complete failure on both ends; Like when Fernando took over Normando.

forumites who did what?

 

[Essexfenwick]

I saw this closed thread on this topic and found nothing else: https://appraisersforum.com/forums/threads/small-appraisal-practice.213094/page-2

Last post in that thread was 2016 and the overwhelming agreement then was that appraisal practices are not really saleable. Has anything changed in the market since then?

I know of one sale in MA about 20 years ago that was done by an earn-out and was successful. Other than IRR's practice purchases 20+ years ago, I am not aware of any sales.

Law firms, CPA practices, property management practices are readily saleable. But, I knew a roofer in FL in '90's who bought the business of a roofer I used - he told me that all he bought was the phone number. Today, you would add the website.

What would make an appraisal practice saleable? Is it owning office space? An assembled workforce? Specialty (high bar to entry) clients served by the existing workforce? I understand the sole proprietor working in his/her family room is not a saleable practice.

You could sell the company name website, phone number and equipment. It would be a great kickstart for an appraiser or a small group of appraisers. Wouldn’t be a large number but it could be negotiated

 

[Poser]

didnt mean to post anything lol

 

[glenn walker]

Normally one wants to invest in a Growth Business