Let’s say your retirement is secure. You have enough in savings and investments that you could stop working today, and be sure of living comfortably for the rest of your life. How are you going to dispose of your real estate appraisal business, if you decide to give it up? Here are some helpful insights on how to sell your appraisal business.
Is now the right time?
First of all, make certain you really can retire. If you’re depending on the sale of your appraisal business to fund your retirement, you might be disappointed. Many businesses include expensive equipment, vehicles, owned buildings, and other property that adds up to a lot of money. An appraisal business often consists of one person and a computer—and you won’t make much money by selling your knowledge of the business. If you do own a lot of valuable hard assets that you will sell along with your business, great!
Do you have to sell your appraisal business?
If your retirement does not depend on the sale of your business, you’re in luck: you have many options. You don’t necessarily have to sell your business. You could simply stop, tell other appraisers you have retired, and invite them to divide up your client base. You could resolve to take whatever work comes to you, but stop keeping score from now on. This is a way to fade comfortably into retirement—and the fade can be as fast or slow as you want it to be.
What are your options for selling?
If you have a larger operation, with several employees, they are the first people you should think of selling your business to—perhaps on a gradual buy-in basis. Or you could take on a partner, stay with the company for a year or two, then turn it over entirely. This could be useful if your business is prominent in the community. For example, if your business is called Johnson Appraisals, you could transition the name to Johnson and Jones. Or your successor could choose to keep the original company name.
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How much money can you get from selling your appraisal business?
Your business is only worth what someone will pay for it—and the extent to which a lender will finance it, if it’s not an all-cash sale. If you are still a few years from retirement, find out the approximate current market value of your business, and start looking for ways to increase that value. Buyers and lenders look at what the value of your business is likely to be in the future. They don’t care how much toil you’ve put into it in the past 40 years.
Usually, buyers and lenders will consider the following drivers of business value:
- The historical profitability of the business
- The probability of growth
- The extent to which the business depends on a certain client and/or employee
- Cash flow
- Dependability of steadily recurring business
- The business’ ability to stand out from other appraisers
- The business’ existing reputation
The “fair market value” of a business is whatever a buyer and a seller agree it is. This will be higher if the business is a “going concern” that is likely to remain profitable whatever happens. The “liquidation value” is what you could get for the business if you had to sell off its assets immediately. It will certainly be much less than the fair market value.
How to add value to your business
Especially if you employ people, your business will be more valuable if you have written procedures and policies for every aspect of it—and all your files and financial management up to date on your computer.
If you have an effective marketing plan in place, that will be a strong selling point. If your marketing depends on you, personally, making emails and phone calls, that will be a drawback.
Probably a diversified business will be worth more to a buyer. If you appraise not only single-family homes, but commercial buildings, land, and other assets—and if your business has largely to do with non-lender transactions, independent of an AMC—you can expect more money.
The value of your business will be higher in an area where there is less competition, and where barriers to competition are higher. You might get a better value if you sell to another appraiser, who might pay extra to eliminate you as a competitor.
Bear in mind that if you are a one-person operation, making enough money to live well and save for retirement, but not much more than that, you will in effect be selling a job. In that case, you need to make certain that whatever the seller pays for it will ensure them an income higher than what they would make working for someone else. If you have several dependable employees who are likely to stay on—particularly if you give them the opportunity to invest in the business—you may get a better price.
Don’t count on walking out the door as soon as you’ve sold the business. It might take a few months to get your successor up to speed. But once you have fully retired and handed over the business, you’ll be free to go and enjoy your life.
Editor’s note: This post was originally published on November 22, 2019 and updated on February 21, 2023.
Written by Joseph Dobrian. Joseph Dobrian has been writing about commercial and residential real estate, and real estate-related finance, for more than 30 years. His byline has appeared in The Wall Street Journal,The New York Times, The New Yorker, Real Estate Forum, Journal of Property Management, and many other publications. He is also a noted novelist, essayist, and translator. His website is www.josephdobrian.com, and he can be contacted at [email protected].