That is a common question when we meet with a business owner to help them prepare their business for sale if the real estate is an integral part of the business.
Up until a year ago the business owners usually had a pleasant surprise…their land was worth more than they thought.
However, in the declining economic climate, the reverse is often true…the land on which the business sits is actually worth less money than it was just a year ago.
Why? Because many banks greedily allowed overzealous builders and developers to overbuild real estate projects and now the entire Northwest Arkansas landscape has empty and/or foreclosed buildings.
That is NOT good news for business owners who have real estate as one of the assets they are selling with their business.
About six years ago we at The CBI+Team came up with a relatively low cost method of doing that. We made arrangements with local certified real estate appraisers to do a short form real estate appraisal. The appraisers did the ground work and research to come up with a value of the real estate but didn’t do a formal report, just a one page report that gave the business owner a realistic idea as to the value of the real estate but at less than 1/3 the cost of a typical commercial appraisal.
The seller could then get a realistic idea about the value of the real estate and determine if it made sense to sell the real estate as an asset of the business.
However, in most cases, it is better from a tax perspective for the business owner to lease the property to the business buyer. The buyer can often get the seller to give an option to purchase at some point in the future.
It’s generally a win-win.
However, sometimes the buyer needs to purchase the real estate so the collateral value of the real estate helps support the purchase price of the business from a bank lending perspective (if you can find a bank making business loans these days)! If the buyer needs to purchase the real estate the seller can make his appraisal available to the buyer and the buyer’s bank. Since the appraisers are certified they can generally complete the bank’s formal appraisal in less time and for less money and the seller can often be reimbursed by the buyer for the seller’s initial expense (paying for the appraisal) as part of the closing costs.
That’s a WIN-WIN and that’s what we at The CBI+Team like!!
Creatively helping business sellers and buyers to secure their financial future!