What is an Appraiser? How Does an Appraisal Work?

Appraisals on Businesses and Business Assets

Business Appraisers and Business Appraisals
Business Appraisers and Business Appraisals. -Oxford-/Getty Images

If you have sold or bought a home, the lender will have required an appraiser to report on the value of the home. Appraisers work in all types of situations: 

Appraisers work the same way in all situations, including business valuations. 

What is an Appraiser?

Appraisers are required to operate independently to prepare a business valuation or to value business assets, using financial analysis, physical review, and industry comparisons.

Appraisers are certified/licensed by state regulatory boards, for the states in which they practice, and appraisers must comply with the Uniform Standards of Professional Appraisal Practice.

Why are Appraisers Needed? 

Many personal and business transactions involving property require an outside independent person to provide an opinion about the value of that property. For example, in art appraisal in a divorce, an appraiser can give a disinterested but expert opinion about the value of the art. 

Types of Business Appraisers

  • A business appraiser values businesses for sale or for other purposes
  • Some appraisers specialize in intellectual property (patents, copyrights, trademarks) and other intangible assets. These intangible assets are valued differently from tangible assets. 
  • An equipment appraiser evaluates equipment for sale as part of a business transaction. For example, if a business wants a loan, and pledges specific business assets as collateral for that loan, an appraiser will review the condition of the assets and the fair market value, to determine the value of the assets. 

    What is an Appraisal? 

    An appraisal is the process the appraiser goes through to determine the value of whatever is being appraised. An appraisal is a done by a disinterested party (the appraiser) according to specific standards for the type of asset being appraised. 

    Ways to Appraise or Value a Business

    Businesses can be valued in several different ways.

    Usually an appraiser uses several different valuation methods to come up with several values for a business, based on certain assumptions. 

    • The Fair Market Value method usually value of all equipment, furniture and fixtures, vehicles, and intangible assets. 
    • A Liquidation value assumes that the business stops and all assets must be sold quickly. This is the most drastic valuation, because it means that the business owner will receive only the minimum value. 
    • A "Going concern" value assumes that the business continues to pay its bills and be profitable. This is the highest valuation amount, because a going concern is the best situation for buying a business. 

    How to Find a Business Appraiser

    If you are looking for an appraiser for your business, you might want to check one of these websites: 

    Institute of Business Appraisers

    The American Society of Appraisers

    Both of these organizations accredits business appraisers. That means the organization has its own accreditation method, which may be more or less rigorous. 

    You may want to read more about accreditation for appraisers on the BizBuySell website.