Quantcast

Fair Market Value

INNspiring.com | Innkeeper Forum & Innkeeping Resources

Help Support INNspiring.com | Innkeeper Forum & Innkeeping Resources:

kattrin

Active member
Joined
Oct 8, 2008
Messages
29
Reaction score
0
Does anyone know how to establish a true fair market value on an existing Inn? We have run the Inn for a one year period with the option to purchase at the end of the year. Now we need to establish a true fair market price - not the price the present owner thinks he should get. Should we hire someone to establish the price and if so, who? Are there experts in the field? Any help would be appreciated.
 

wendydk

Well-known member
Joined
Jun 7, 2009
Messages
1,656
Reaction score
0
An option value should have been established at the beginning of your arrangement.
"Fair Market Value" is whatever sale price you and the sellers agree on.
 

EmptyNest

Well-known member
Joined
May 22, 2008
Messages
8,741
Reaction score
1
BOY that's a toughie...a regular realtor probably won't work..you would need to have someone who specializes in B & B's to evaluate the property..and that is going to cost you some $$$$ They won't do it for free.
 

One Day

Well-known member
Joined
Jul 20, 2009
Messages
686
Reaction score
0
Why not start with a real estate appraisal.
Do you know what the years net is?......if you do....you can negotiate that.....pay a % of the years net.
When considering net....it would be a good idea to go in the books back a year or two.....and do an average
 

Breakfast Diva

Well-known member
Joined
May 26, 2009
Messages
5,909
Reaction score
25
Get a commercial appraisal. You might want to split the cost of it if the current owners won't pay for the whole thing.
 

JBloggs

Moderator
Moderator
Joined
Oct 7, 2008
Messages
17,743
Reaction score
0
Appraisels are difficult with lack of comp's. They don't give real value for bathrooms, we all know how costly they are to add.
Who is establishing this? You or the owners of the business? I mean are you trying to get a lower price as you think it is too high?
Real estate plus business? What state are you in? I know there are some here who could recommend some consultants/BnB brokers to help evaluate the worth of the business+real estate+furnishings.
 

One Day

Well-known member
Joined
Jul 20, 2009
Messages
686
Reaction score
0
What do you mean what state am I in?
You are buying a business.....that business entails property and the business....
This is no different than any other type of business transaction.....except that the B&B business corelates with the property.
Lets say for example.....A guy in town A has a printing business...he owns the building it is in......he wants to sell the business......purchaser can buy the business alone or along with the property......now suppose purhaser is in town B.....20 miles away from town A.....he wants to buy the business but relocate the business to his town.....he has to pay for the fair market value of the printing business and building?.......no way.
If you wanted to buy an ice cream truck.......you would have to know the fair market value of the truck and the revenue it produces......
if you wanted to buy a plumbing business.....you assess the fair market value of the tools, vehicles and so on....then the revenue
You want to buy a lawn care company....you assess the value of the equipment...then the annual revenue
What do you think a B&B professional is going to do?
 

gillumhouse

Moderator
Staff member
Moderator
Supporting Member
Joined
May 22, 2008
Messages
15,558
Reaction score
145
What do you mean what state am I in?
You are buying a business.....that business entails property and the business....
This is no different than any other type of business transaction.....except that the B&B business corelates with the property.
Lets say for example.....A guy in town A has a printing business...he owns the building it is in......he wants to sell the business......purchaser can buy the business alone or along with the property......now suppose purhaser is in town B.....20 miles away from town A.....he wants to buy the business but relocate the business to his town.....he has to pay for the fair market value of the printing business and building?.......no way.
If you wanted to buy an ice cream truck.......you would have to know the fair market value of the truck and the revenue it produces......
if you wanted to buy a plumbing business.....you assess the fair market value of the tools, vehicles and so on....then the revenue
You want to buy a lawn care company....you assess the value of the equipment...then the annual revenue
What do you think a B&B professional is going to do?.
I believe the question was addressed to the person who started this thread - not of you. How things woek and what the rules are vary from State to State - sometines from county to county and in Louisiana from Parrish to Parrish.
 

One Day

Well-known member
Joined
Jul 20, 2009
Messages
686
Reaction score
0
Oh....
My apologize Joe....
Didn't catch it that way
 

sunburst2

Member
Joined
May 2, 2009
Messages
24
Reaction score
0
While everything already said is probably correct, the fact that there are likely no or few comparables make an appraisal difficult; and if you don't like the appraisal once you have it you are stuck with it. Just make an offer, that's how a price is agreed upon between seller and buyer. Offer what you think it is worth to you, as real estate, as a business and even as a unique opportunity that you want. B&B's aren't that easy to sell, seems there are quite a few on this site who are looking for a buyer! The owner may sell for much less than what they say they want, depends how bad they want to sell. So make an offer and see what happens, you will either come to happy terms or not.
 

egoodell

Well-known member
Joined
Jun 1, 2008
Messages
3,023
Reaction score
0
While everything already said is probably correct, the fact that there are likely no or few comparables make an appraisal difficult; and if you don't like the appraisal once you have it you are stuck with it. Just make an offer, that's how a price is agreed upon between seller and buyer. Offer what you think it is worth to you, as real estate, as a business and even as a unique opportunity that you want. B&B's aren't that easy to sell, seems there are quite a few on this site who are looking for a buyer! The owner may sell for much less than what they say they want, depends how bad they want to sell. So make an offer and see what happens, you will either come to happy terms or not..
sunburst2 said:
While everything already said is probably correct, the fact that there are likely no or few comparables make an appraisal difficult; and if you don't like the appraisal once you have it you are stuck with it. Just make an offer, that's how a price is agreed upon between seller and buyer. Offer what you think it is worth to you, as real estate, as a business and even as a unique opportunity that you want. B&B's aren't that easy to sell, seems there are quite a few on this site who are looking for a buyer! The owner may sell for much less than what they say they want, depends how bad they want to sell. So make an offer and see what happens, you will either come to happy terms or not.
This is sound advice! Under normal circumstances it it said it usually takes about 2 years to sell a B&B and these days are not normal. I would bet they are counting on the fact that you've fallen in love with the property and will do what you can to get it. You have to be firm and ready to walk if they don't come to terms with what you CAN AFFORD to pay and what YOU THINK IT IS WORTH. And I would not let them put a big price tag on the business either unless it's a top Trip Advisor rated B&B and making oodles of money. If you are ready to walk if they are being unreasonable, they may be forced back to reality.
LIke has been said I would find a comp for the property and then I think you have said you've been running the business? Figure out what you have made while running it and see what the total comes to.
RIki
 

kattrin

Active member
Joined
Oct 8, 2008
Messages
29
Reaction score
0
The current owners bought the Inn from the previous owners because it was an historical home and they didn't want to see it empty. Their main concern is paying off their loans - that is not my concern. I want to come up with a fair price but because we have been here awhile, we know what the real issues are and what needs to be fixed or repaired. After reading all the post, I have decide to get an appraisal from a specialist so there is no issues with the loan and have the owners split the cost of the appraisal. I might get it for less if I just make an offer but then I would not be able to get the loan I want. We are so busy, it is hard to get time to do anything without help from the outside. Hope that problem last forever.
 

JBloggs

Moderator
Moderator
Joined
Oct 7, 2008
Messages
17,743
Reaction score
0
The current owners bought the Inn from the previous owners because it was an historical home and they didn't want to see it empty. Their main concern is paying off their loans - that is not my concern. I want to come up with a fair price but because we have been here awhile, we know what the real issues are and what needs to be fixed or repaired. After reading all the post, I have decide to get an appraisal from a specialist so there is no issues with the loan and have the owners split the cost of the appraisal. I might get it for less if I just make an offer but then I would not be able to get the loan I want. We are so busy, it is hard to get time to do anything without help from the outside. Hope that problem last forever..
kattrin said:
The current owners bought the Inn from the previous owners because it was an historical home and they didn't want to see it empty. Their main concern is paying off their loans - that is not my concern. I want to come up with a fair price but because we have been here awhile, we know what the real issues are and what needs to be fixed or repaired. After reading all the post, I have decide to get an appraisal from a specialist so there is no issues with the loan and have the owners split the cost of the appraisal. I might get it for less if I just make an offer but then I would not be able to get the loan I want. We are so busy, it is hard to get time to do anything without help from the outside. Hope that problem last forever.
Not sure how much you are paying for it, but depending on the loan you get they will require an appraisel anyway, so make sure the appraiser you use will be able to transfer the appraisel to the bank. Otherwise you will pay for it twice (I realize it is for a different purpose in both cases).
 

Breakfast Diva

Well-known member
Joined
May 26, 2009
Messages
5,909
Reaction score
25
The current owners bought the Inn from the previous owners because it was an historical home and they didn't want to see it empty. Their main concern is paying off their loans - that is not my concern. I want to come up with a fair price but because we have been here awhile, we know what the real issues are and what needs to be fixed or repaired. After reading all the post, I have decide to get an appraisal from a specialist so there is no issues with the loan and have the owners split the cost of the appraisal. I might get it for less if I just make an offer but then I would not be able to get the loan I want. We are so busy, it is hard to get time to do anything without help from the outside. Hope that problem last forever..
kattrin said:
The current owners bought the Inn from the previous owners because it was an historical home and they didn't want to see it empty. Their main concern is paying off their loans - that is not my concern. I want to come up with a fair price but because we have been here awhile, we know what the real issues are and what needs to be fixed or repaired. After reading all the post, I have decide to get an appraisal from a specialist so there is no issues with the loan and have the owners split the cost of the appraisal. I might get it for less if I just make an offer but then I would not be able to get the loan I want. We are so busy, it is hard to get time to do anything without help from the outside. Hope that problem last forever.
Not sure how much you are paying for it, but depending on the loan you get they will require an appraisel anyway, so make sure the appraiser you use will be able to transfer the appraisel to the bank. Otherwise you will pay for it twice (I realize it is for a different purpose in both cases).
.
Joe Bloggs said:
kattrin said:
The current owners bought the Inn from the previous owners because it was an historical home and they didn't want to see it empty. Their main concern is paying off their loans - that is not my concern. I want to come up with a fair price but because we have been here awhile, we know what the real issues are and what needs to be fixed or repaired. After reading all the post, I have decide to get an appraisal from a specialist so there is no issues with the loan and have the owners split the cost of the appraisal. I might get it for less if I just make an offer but then I would not be able to get the loan I want. We are so busy, it is hard to get time to do anything without help from the outside. Hope that problem last forever.
Not sure how much you are paying for it, but depending on the loan you get they will require an appraisel anyway, so make sure the appraiser you use will be able to transfer the appraisel to the bank. Otherwise you will pay for it twice (I realize it is for a different purpose in both cases).
I doubt you will be able to use the same appraisal. We just closed on a home for ourselves (nothing to do with b&b) and the new regulations prohibit the bank, mortgage broker or real estate agent to have direct contact with the appraiser or assign the appraiser. Gone are the days of being able to choose your own appraiser. The lender now has to use a company which assigns your appraiser without any input from you. This was a big problem with our closing. The appraiser appointed for our transaction was a dud, didn't know the area and used inappropriate comps. Because of the dud appraiser we had to file two extensions of escrow. The regulations have now swung from one extreme to another.
 

JBloggs

Moderator
Moderator
Joined
Oct 7, 2008
Messages
17,743
Reaction score
0
The current owners bought the Inn from the previous owners because it was an historical home and they didn't want to see it empty. Their main concern is paying off their loans - that is not my concern. I want to come up with a fair price but because we have been here awhile, we know what the real issues are and what needs to be fixed or repaired. After reading all the post, I have decide to get an appraisal from a specialist so there is no issues with the loan and have the owners split the cost of the appraisal. I might get it for less if I just make an offer but then I would not be able to get the loan I want. We are so busy, it is hard to get time to do anything without help from the outside. Hope that problem last forever..
kattrin said:
The current owners bought the Inn from the previous owners because it was an historical home and they didn't want to see it empty. Their main concern is paying off their loans - that is not my concern. I want to come up with a fair price but because we have been here awhile, we know what the real issues are and what needs to be fixed or repaired. After reading all the post, I have decide to get an appraisal from a specialist so there is no issues with the loan and have the owners split the cost of the appraisal. I might get it for less if I just make an offer but then I would not be able to get the loan I want. We are so busy, it is hard to get time to do anything without help from the outside. Hope that problem last forever.
Not sure how much you are paying for it, but depending on the loan you get they will require an appraisel anyway, so make sure the appraiser you use will be able to transfer the appraisel to the bank. Otherwise you will pay for it twice (I realize it is for a different purpose in both cases).
.
Joe Bloggs said:
kattrin said:
The current owners bought the Inn from the previous owners because it was an historical home and they didn't want to see it empty. Their main concern is paying off their loans - that is not my concern. I want to come up with a fair price but because we have been here awhile, we know what the real issues are and what needs to be fixed or repaired. After reading all the post, I have decide to get an appraisal from a specialist so there is no issues with the loan and have the owners split the cost of the appraisal. I might get it for less if I just make an offer but then I would not be able to get the loan I want. We are so busy, it is hard to get time to do anything without help from the outside. Hope that problem last forever.
Not sure how much you are paying for it, but depending on the loan you get they will require an appraisel anyway, so make sure the appraiser you use will be able to transfer the appraisel to the bank. Otherwise you will pay for it twice (I realize it is for a different purpose in both cases).
I doubt you will be able to use the same appraisal. We just closed on a home for ourselves (nothing to do with b&b) and the new regulations prohibit the bank, mortgage broker or real estate agent to have direct contact with the appraiser or assign the appraiser. Gone are the days of being able to choose your own appraiser. The lender now has to use a company which assigns your appraiser without any input from you. This was a big problem with our closing. The appraiser appointed for our transaction was a dud, didn't know the area and used inappropriate comps. Because of the dud appraiser we had to file two extensions of escrow. The regulations have now swung from one extreme to another.
.
Breakfast Diva said:
Joe Bloggs said:
kattrin said:
The current owners bought the Inn from the previous owners because it was an historical home and they didn't want to see it empty. Their main concern is paying off their loans - that is not my concern. I want to come up with a fair price but because we have been here awhile, we know what the real issues are and what needs to be fixed or repaired. After reading all the post, I have decide to get an appraisal from a specialist so there is no issues with the loan and have the owners split the cost of the appraisal. I might get it for less if I just make an offer but then I would not be able to get the loan I want. We are so busy, it is hard to get time to do anything without help from the outside. Hope that problem last forever.
Not sure how much you are paying for it, but depending on the loan you get they will require an appraisel anyway, so make sure the appraiser you use will be able to transfer the appraisel to the bank. Otherwise you will pay for it twice (I realize it is for a different purpose in both cases).
I doubt you will be able to use the same appraisal. We just closed on a home for ourselves (nothing to do with b&b) and the new regulations prohibit the bank, mortgage broker or real estate agent to have direct contact with the appraiser or assign the appraiser. Gone are the days of being able to choose your own appraiser. The lender now has to use a company which assigns your appraiser without any input from you. This was a big problem with our closing. The appraiser appointed for our transaction was a dud, didn't know the area and used inappropriate comps. Because of the dud appraiser we had to file two extensions of escrow. The regulations have now swung from one extreme to another.
I didn't know that. Thanks for sharing that info. We had an appraisel done here and there are no other BnB's so they picked a home with 5 bedrooms 3 baths. Which is not even close to what we have here, at all. That was the only comp, I know the rules are set to have three comps. Keep us posted on what you end up doing.
 

Morticia

Administrator
Staff member
Administrator
Moderator
Joined
May 22, 2008
Messages
17,355
Reaction score
224
Did you notice there is now a blog posting about valuing an inn? Something to look at.
 

muirford

Administrator
Staff member
Administrator
Moderator
Joined
May 22, 2008
Messages
2,493
Reaction score
12
Did you notice there is now a blog posting about valuing an inn? Something to look at..
Other B&B brokers have different methods of valuing B&Bs and their businesses/real estate. It would be worthwhile to talk to more than one source, if choosing that route over a commercial appraiser.
 

EmptyNest

Well-known member
Joined
May 22, 2008
Messages
8,741
Reaction score
1
This from a VA B & B realtor:
" As the years go by and we at The B&B Team do our work for current and aspiring innkeepers, there is one issue which never fails to perplex and which is so fundamentally important that we thought we should cover the topic again, briefly. That topic is about the basics of inn valuation.If you own an inn or hope to some day, you need to have an exit strategy founded on sound principles. If the goal of an exit strategy is one day to sell your inn, you need to know what you will be selling and how the marketplace values it. Fundamentally there are two basic property types in the Innkeeping world: residential and commercial. Smaller B&B's are generally residential, and larger, viable inns and inn businesses are commercial. Each will be valued and financed differently.
Residential real estate is valued based on what the marketplace is willing to pay to live in a given house on a given street and is only limited by supply and demand. The result is that most smaller B&Bs, which are very desirable as homes and have limited income, are worth more as a residence than a business. In fact, they are generally only worth the sum of the real estate and the furnishings. Sellers of smaller B&B's should consider an exit strategy founded upon selling their wonderful home and hoping someone will take over the "business" even if they don't pay you for it. Like most small businesses, when you are done, you are most likely to close your doors and take down the sign, gratified in having enjoyed your Innkeeping experience.
On the other hand, owners of larger, viable inns must remember that buyers are looking for a business, not a house, and everything about their purchase and evaluation will hinge on revenue. Where the smaller inns can and should take advantage of every possible tax shelter, as this is a significant financial benefit of ownership, owners of larger inns should keep bottom line profits in mind as a priority over avoiding paying taxes.
Lenders will want to see three years' tax returns to verify income statements, so it's never too late to begin operating your business like a business. If that means you have to pay some taxes, so be it. Modest increases in net operating income can generate a ten-fold increase in value, dollar for dollar. The increase in value will far outstrip the short term benefits of the tax savings, so report all your earnings and don't pad your operating expenses with personal items. This excludes line items like depreciation, rent you pay yourself, interest expense, and other legitimate deductions.
If you remember these simple principles, you'll enjoy a far more swift and profitable exit when the time comes to move on to your next great adventure!"
 

muirford

Administrator
Staff member
Administrator
Moderator
Joined
May 22, 2008
Messages
2,493
Reaction score
12
This from a VA B & B realtor:
" As the years go by and we at The B&B Team do our work for current and aspiring innkeepers, there is one issue which never fails to perplex and which is so fundamentally important that we thought we should cover the topic again, briefly. That topic is about the basics of inn valuation.If you own an inn or hope to some day, you need to have an exit strategy founded on sound principles. If the goal of an exit strategy is one day to sell your inn, you need to know what you will be selling and how the marketplace values it. Fundamentally there are two basic property types in the Innkeeping world: residential and commercial. Smaller B&B's are generally residential, and larger, viable inns and inn businesses are commercial. Each will be valued and financed differently.
Residential real estate is valued based on what the marketplace is willing to pay to live in a given house on a given street and is only limited by supply and demand. The result is that most smaller B&Bs, which are very desirable as homes and have limited income, are worth more as a residence than a business. In fact, they are generally only worth the sum of the real estate and the furnishings. Sellers of smaller B&B's should consider an exit strategy founded upon selling their wonderful home and hoping someone will take over the "business" even if they don't pay you for it. Like most small businesses, when you are done, you are most likely to close your doors and take down the sign, gratified in having enjoyed your Innkeeping experience.
On the other hand, owners of larger, viable inns must remember that buyers are looking for a business, not a house, and everything about their purchase and evaluation will hinge on revenue. Where the smaller inns can and should take advantage of every possible tax shelter, as this is a significant financial benefit of ownership, owners of larger inns should keep bottom line profits in mind as a priority over avoiding paying taxes.
Lenders will want to see three years' tax returns to verify income statements, so it's never too late to begin operating your business like a business. If that means you have to pay some taxes, so be it. Modest increases in net operating income can generate a ten-fold increase in value, dollar for dollar. The increase in value will far outstrip the short term benefits of the tax savings, so report all your earnings and don't pad your operating expenses with personal items. This excludes line items like depreciation, rent you pay yourself, interest expense, and other legitimate deductions.
If you remember these simple principles, you'll enjoy a far more swift and profitable exit when the time comes to move on to your next great adventure!".
That is the blog posting that Bree pointed out. There are points in this that I personally don't agree with, and other B&B realtors don't share the same single method of valuation that this realtor proposes.
 

egoodell

Well-known member
Joined
Jun 1, 2008
Messages
3,023
Reaction score
0
I wonder if the B&B Team are reading our forum? They just sent out an email about figuring out fair value for an inn. I'm going to try and paste it in here:
[tr][tr]The Basics of Inn Valuation: never, never forget!
by The B&B Team
As the years go by and we at The B&B Team do our work for current and aspiring innkeepers, there is one issue which never fails to perplex and which is so fundamentally important that we thought we should cover the topic again, briefly. That topic is about the basics of inn valuation.
If you own an inn or hope to some day, you need to have an exit strategy founded on sound principles. If the goal of an exit strategy is one day to sell your inn, you need to know what you will be selling and how the marketplace values it. Fundamentally there are two basic property types in the Innkeeping world: residential and commercial. Smaller B&B's are generally residential, and larger, viable inns and inn businesses are commercial. Each will be valued and financed differently.
Residential real estate is valued based on what the marketplace is willing to pay to live in a given house on a given street and is only limited by supply and demand. The result is that most smaller B&Bs, which are very desirable as homes and have limited income, are worth more as a residence than a business. In fact, they are generally only worth the sum of the real estate and the furnishings. Sellers of smaller B&B's should consider an exit strategy founded upon selling their wonderful home and hoping someone will take over the "business" even if they don't pay you for it. Like most small businesses, when you are done, you are most likely to close your doors and take down the sign, gratified in having enjoyed your Innkeeping experience.
On the other hand, owners of larger, viable inns must remember that buyers are looking for a business, not a house, and everything about their purchase and evaluation will hinge on revenue. Where the smaller inns can and should take advantage of every possible tax shelter, as this is a significant financial benefit of ownership, owners of larger inns should keep bottom line profits in mind as a priority over avoiding paying taxes.
Lenders will want to see three years' tax returns to verify income statements, so it's never too late to begin operating your business like a business. If that means you have to pay some taxes, so be it. Modest increases in net operating income can generate a ten-fold increase in value, dollar for dollar. The increase in value will far outstrip the short term benefits of the tax savings, so report all your earnings and don't pad your operating expenses with personal items. This excludes line items like depreciation, rent you pay yourself, interest expense, and other legitimate deductions.
If you remember these simple principles, you'll enjoy a far more swift and profitable exit when the time comes to move on to your next great adventure!
Click Here to Leave a Comment
[/td][/tr][/table][/td][/tr][tr][tr] [/td] [/td] [/td][/tr][/table][/td][/tr][tr][tr][hr][/hr]The B&B Team, Inc.
Inn Consultants and Brokers Since 1993
With Offices in Virginia and Maine

PETER SCHERMAN ~ P.O. Box 399, Scottsville, VA 24590
(434) 286-4600 ~ bbteam@bbteam.com Twitter PeterInVA
[/td][/tr][/table][/td][/tr][/table]
 
Top