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Business Valuation or Appraisal must be completely unbiased

This comment comes as a result of a prospective Business Valuation Client I just talked to. After investing several hours in learning what the Client needed, digging deeper to understand the situation and the kind of help she would need and explaining what we do, I fully expected her to engage us. She expressed keen interest and agreed that the fee was acceptable. Then the next day she told me a local commercial broker wanted to meet with her to do the appraisal. Okay, that is understandable, even though a commercial real estate broker obliviously has a different skill package to offer than a Certified Appraiser. What set poorly with me was the comment that “he would only charge her the appraisal fee if the bank loan went through”. When I questioned this she commented that he would probably share in the commission with the Selling Broker. So here’s my BLOG Warning of the Month: “Danger, Danger, Danger!” Dear Reader, this is the brightest Red Flag I can wave. The Valuation or Appraisal can not depend on the outcome. It is a clear violation of USPAP rules. And for good reason. The Valuation or Appraisal must be 100% and completely unbiased. And how can that be if the fee is contingent on the outcome? This is a terrible conflict of interest and should be an immediate turn-off regarding the person who proposes it. I’ll have more to say in another Blog Posting.

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