Has anyone requested contribution from seller for cost of bank valuations?

July 01, 2020

by a searcher from The University of Auckland - The University of Auckland Business School in Los Angeles, CA, USA

Acquiring real estate and business assets - seller has no current valuation of either.

Context -
1. Seller claims to have other interested buyers.
2. Banks sometimes quit deals last minute.

Question -
Has anyone tried requesting say 35% contribution from seller towards valuation costs in return for copy of reports?

Seller benefit =
Use of valuation to support price sought from other buyers.

Also welcome -
Any suggestions on avoiding or mitigating scenario of surprise last-minute abandonment of transactions by banks.

Thanks.

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Reply by an intermediary
from Boise State University in 800 W Main St, Boise, ID 83702, USA

Here's my perspective as an former commercial lender, current business intermediary and appraiser - everything is negotiable. It can't hurt to ask. That being said, here are the challenges. When a bank orders the appraisal, it is for their use. The bank will require that you pay for the appraisal before they order it. If you've paid for it, you get a copy.

However, the appraisal will state that it is not to be used by any other person or for any other purpose. Lots of people ignore that disclaimer but the appraiser puts that in there for a reason. A valuation is based on the current circumstances for a particular purpose. The seller really should 1) get his own real estate appraisal and 2) business valuation. on the going-concern. He is hurting himself by guessing at what the value/price may be. That may or may not be to your benefit.

Many times sellers think their business and real estate is worth more than it really is. That puts you in the position of trying to explain the value while being in the buyer's shoes. That's challenging. I'm curious as to why the seller doesn't have a trusted advisor that is advising him to get his own valuation from a credentialed, competent appraiser. That would help you too.

P.S. If you (or the seller or any third party) order the real estate appraisal and/or business valuation, a bank will not accept those appraisal reports for financing/underwriting purposes. Its against banking regulations. They have to order it directly from their own list of appraisers. The seller should get the valuation work done for himself. Then you could offer to pay for part of it at closing, if you get there.

Reply by a searcher
from University of Virginia in New York, NY, USA

Information is power in a negotiation. You give away any upside for the small upfront cost of an appraisal. Unless you have exclusivity and have agreed to pay fair market value for the real estate you are hurting your position and asking for the seller to shop the deal with other potential buyers.

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