The Use of a Joint Appraiser

Written by: Chandler Simich, CPA

Here at Cogence Group, we are often jointly engaged to value a business by counsel representing two opposing parties in litigation. This is common in marital dissolution or shareholder disputes.

To properly execute a joint appraisal, we must take careful consideration of both parties’ thoughts and opinions, be completely transparent with the flow of information, and ensure clear communication among all parties. Although there are benefits to doing a joint appraisal, there are also many challenges. Continue reading if you think a joint appraisal might be right for you!

What are joint appraisals?

A joint appraisal occurs when two opposing parties hire one valuation expert to value the business(es) in question. The process involves both parties as well as each parties’ attorney(s). Through careful deliberation and analysis, the valuation expert arrives at one value or range of values for the business(es). The parties can then use this analysis to proceed to settlement.

Key Considerations

As mentioned above, it is very important to consider all information received from both parties. It is also equally important to obtain evidence that supports both parties’ claims. For example, the dispute under question will more likely than not influence one party to want the value of the business(es) high versus the other party to want the value of the business(es) low. Therefore, it is critical to challenge what clients are telling us through external evidence. We can use this evidence to evaluate assumptions in addition to determine its impact on value.  Both parties will have their own biases so it is crucial to make sure you select an appraiser who will take extra care to arrive at a fair and unbiased value conclusion.

Advantages

The use of a joint appraiser can be an incredibly effective way to streamline the litigation process and ensures that both parties have the ability to participate, listen, and consider the other parties’ opinions that impact a business’s value. While you are not the only voice that an appraiser considers, both you and the other party have equal input. Whereas, using separate appraisers, the conclusion of value may be vastly different. This can drag out litigation and even result in hiring a third appraiser. Furthermore, if one party has limited access to the business’s financial information and other records, the use of a joint appraiser eliminates the concealing of documents from the other party.

Challenges

When performing a joint engagement, many assume the cost would be half the cost of hiring your own appraiser. On the contrary, it may cost significantly more. Additional time costs result from extensive communication to multiple parties, multiple owner interviews, and resolving any disagreements between the two parties. For example, if we need to obtain financial statement projections from both parties which incorporate assumptions about the future, these projections will look very different due to each parties’ biases. In order to proceed with the engagement, we may need to make tough decisions about which assumptions to believe regarding future business performance. Reaching an agreement and reconciling two vastly different expectations can result in significant time cost for the appraiser and may ultimately arrive at no agreement between the parties.

From an attorney’s perspective, as the flow of all information and communication must be transparent between all parties, the attorney loses some control over the valuation process and potentially the appraiser. Lastly, the process for selecting one appraiser can be cumbersome and unsatisfactory if, again, the parties cannot agree.

Overall, joint engagements can be extremely advantageous in arriving at a fair and unbiased value of the business. With over 30+ years of experience, Cogence Group recognizes the importance of the decision to separately or jointly engage your expert. Take the time to find a qualified expert who has significant expertise in jointly valuing businesses. Count on the experience you can trust. If you or your client are still wondering if a joint appraisal would be most beneficial, please book a free 30-minute consultation via our website to discuss more. We would love to hear from you!