Do You Prepare Business Valuations that Include Real Estate?

I am regularly asked this question.

The short answer is yes, but it is a bit nuanced. I am a Certified Business Appraiser (CBA) which is different from a real estate appraiser. However, I regularly develop business valuations that include ownership of real estate.

So, how does that work?

As I develop a thorough valuation of a business, if there is associated real estate, the value of the real estate is included in preparing the business appraisal. A real estate appraisal of a property or many properties is an input into the detailed valuation process.

Like many other inputs I gather, the appraisal of the real estate is incorporated into the overall business valuation to then determine fractional ownership value as needed. That applies to all ways a business entity may have real estate interests as part of its business.

There are many examples of how an entity, or a separate entity has real estate interest that are factored into my work for tax-related needs including gifting and estate settlement and for other valuation needs such as settlement of a divorce or selling shares in a business:

  1. The same business entity owns the real estate.
  2. Real estate is owned by a different entity than the business.
  3. Vacation home organized as a business entity where ownership has been gifted over many generations, multiple owners of the property with various degrees of ownership.
  4. A VRBO-like situation: the residential property is organized as a business entity and is earning revenue; single owner or multiple owners with fractional ownership.

In all these cases, development of the business valuation is prepared incorporating the appraisal of the real estate associated with the business. I include the real estate appraisal and account for the ownership of the associated real estate in the detailed business valuation that is then prepared.

A unique situation that recently occurred included preparing a business valuation for settlement of an estate. The business valuation included the real estate, owned by a separate entity, and valuation of the business that operated on the real estate. At the conclusion of the work, the valuation indicated that operating the company did not generate enough value to support the real estate value. It made more sense to cease operations of the business and liquidate the assets than to continue operating the business.

When values matter, including those that include real estate, secure a business valuation professional to prepare a thorough and objective valuation.

Contact us.