The call to be the third appraiser can be problematic

Chris Mercer (Mercer Capital) posted this insight on his Valuation Speak blog this week:  "Over the last several years, I’ve been involved in several multiple appraiser valuation processes as the third appraiser.  These experiences provide the basis for a few ideas to 'fix' a process that is already underway and headed for almost certain trouble for one or more of the following reasons:"

  • In some cases, when the call comes, there have already been two appraisals that are not close together in their conclusions.
  • In other cases, there has been a failure to negotiate a value and two appraisers have been selected (one by the selling shareholder and one by the company) for the purpose of picking a third appraiser.
  • Often, no information is provided in the buy-sell agreement regarding required qualifications for the appraisers.  The first two appraisers often differ in terms of background, qualifications, and independent valuation experience.  At this point, they have to agree, regardless of prior instructions or lack thereof.
  • In some cases, even though the first two appraisers are supposed to select the third appraiser, the buy-sell agreement is not clear on what party(ies) will pay the third appraiser’s fees.  This must be resolved.
  • And so on…

 Mercer also provides steps to help address the problems with appraisals by third appraisers. Read the article here.