WHY BUSINESS APPRAISERS FAIL
Appraisers are agents who establish the value of businesses, personal property, intellectual property (such as patents, trademarks, and copyrights), and real estate through a process known as valuation or appraisal. The demand for valuation of business for business enterprises has increased in the last decades in many business sectors for a variety of reasons, including the rise in corporate restructuring, rising incidents of litigation, changing employee compensation packages, continued purchase of existing businesses, and the proliferation of employee stock ownership plans (ESOP), which require annual appraisals of value. Indeed, the dramatic surge in popularity of ESOP plans accounts for a significant portion of the increase in appraisal/valuation activity across the general business landscape.
Problems In The Business Appraisal Industry
Many business owners and valuation experts contend that the business appraisal industry struggled with a number of significant problems few decades ago. These difficulties inevitably had an impact on small and large businesses that solicit the services of its members. An analyst offered a bleak and somewhat representative assessment of the situation, “Low certification standards have allowed a glut of inexperienced appraisers into the field, knocking the bottom out of the fee structure for the industry and leaving clients questioning the opinions they are buying. Changes made by federal regulatory agencies to improve the quality of work in the appraisal industry may have had the opposite effect, by flooding the industry with appraisers and reducing the amount of work available for them.”
Finding a qualified appraiser
While the business appraiser industry is a troubled one in some respects, consultants hasten to add that many qualified appraisers do exist, and they can be of valuable service to business owners who take the trouble to investigate the merits of various appraisers.
Keys to finding a good appraiser include the following:
Ask round, and then ask around some more. Talk to people in your geographical area, even if their businesses aren’t just like yours; talk to people with similar businesses, even if they are not in your geographical area. Appraisal is a fraternity, and once you know who is in the fraternity, who’s respected, you’ll know who to go to. And very importantly, if the reason you are looking for a valuation has anything to do with taxes, or is likely to somewhere down the line, find out who’s respected by the IRS…who do they use to do their valuation work?
Look for experience and education:
Appraisers with significant experience and a good educational background are far preferable to those who are limited in either area. Moreover, some analysts believe that the appraisal industry is moving towards increased specialization (office buildings, hotels, professional practices, retails outlets, etc.); if possible, find an appraiser who is familiar with your business area.
Recognize that valuation vary from client to client
Appraisals of businesses can vary significantly in terms of their cost, both in terms of time and money. Learn about standard fees imposed on business that most resemble yours in terms of size, health, and situation. The vicissitudes of most projects often make it impossible to charge on a flat fee basis, or even give a responsible estimate of hourlies.
Find a licensed appraiser
The relative ease with which people are able to secure certification in the appraiser business has drawn fire, but it does establish a ground floor of presumed competence.
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