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For What It’s Worth: What a Difference! – March 2016

Real estate appraisals often conclude similar values for properties valued on cost, income, and comparables approaches. Business appraisals often conclude very different values using the same metrics.

Why does this happen?

The answer is that the real estate market is more transparent and efficient than the business market.

Real estate construction cost, income/expense, and comparables data are available, plentiful, relatively easy to project, and closely correlated. In the business market, the costs of creating a firm are expensed, income/expense are difficult to project, and comparables are sparse and inconsistent.

Business valuations are thus subject to much more uncertainty and variability than real estate valuations. Standard valuation approaches often lead to different value indications, even if their underlying data, assumptions, and methodologies are reasonable. Equally informed, competent, honest business appraisers can thus arrive at legitimately different – yet reasonable – value conclusions.

Consider the valuation of a professional services firm. It has few tangible assets – its major ones are its people, their expertise, client relationships, and reputations. None appears on its financial statements. Cost or asset-based value is thus not indicative of worth. Comparables have inconsistent valuation multiples. Income is difficult to forecast. A proper business valuation considers and weighs the different value indications. Expertise, judgment, and a good deal of common sense are required to come to a reasonable and defensible value opinion.

Valuations play a part in all tax, transaction, and litigation matters. For additional information or advice on a current one, please do not hesitate to call.

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About Western Reserve Valuation Services LLC
Western Reserve Valuation Services LLC, based in Columbus, Ohio, is a leading provider of valuation services and financial opinions relating to corporate finance transactions, corporate tax planning and compliance, succession planning and wealth preservation, employee stock ownership plans (“ESOPs”), financial reporting and portfolio / fund valuations. For more information, visit or call (614) 448-3700.

Western Reserve Valuation Services is an affiliate of Western Reserve Partners LLC, a FINRA-member investment banking firm offering financial advisory services relating to mergers and acquisitions, capital raising and financial restructuring. For more information on Western Reserve Partners, please or call (216) 589-0900.

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