Pub. 6 2016 Issue 1

10 AUTOMOBILE DEALER NEWS ILLINOIS www.illinoisdealers.com COUNSELOR’S CORNER BY JULIE A.CARDOSI, LAW OFFICE OF JULIE A. CARDOSI, P.C. DealershipAppraisals–DoNot OverlookStepOne: Define the Scope of Your Expectations W ith the arrival of a new year, some dealers are con- sidering the sale of their dealership businesses. An important first step in valuing the business or other property is procurement of the appraisal. The dealer should insist on a properly documented engagement letter or professional services contract from the appraiser. An important aspect of this instrument is to document the terms, including without limitation, the purpose, scope, cost, and other material aspects of the appraisal to be provided. There are a few common considerations to take into account in framing the ap- praisal engagement. First, the identity of the client for whom the appraisal is being prepared should be spelled out. In the appraisal engagement, the client may be the business owner. In some instances, the client may also include the owner’s attorney. Also, sometimes, reliance on the appraisal may be given to a third party. The appraiser’s engagement should be clear about who the actual client is. The engagement should also address who may rely on the appraisal. For example, an appraisal of the value of a business as of a date certain for estate planning purposes does not necessarily mean the appraisal can be relied upon for other purposes. Accord- ingly, the appraisal engagement should identify the parties to the engagement, who the client is, and who may rely upon the appraiser’s valuation. Another important aspect of the engagement is to define the purpose of the appraisal – why is it being performed? An ap- praisal done for a particular purpose, for example, may set forth a value that is different from an appraisal of the same property performed for another purpose. Equally important to defining the appraisal’s purpose is defining the scope of work the appraiser will perform. For example, is the scope that of a comprehensive valuation or an approximate estimate of value or an analysis of the business? Is the appraisal to be performed for purposes of litigation, sale, estate planning, or liquidation? It’s also funda- mental to define precisely what is to be appraised. For example, many dealerships are family-owned, closely held corporations with a few owners. The scope of work required to complete an appraisal of ownership value for purposes of a buy-sell may be different from that required for purposes of succession planning. Whether it’s the value of the equity a dealer holds or the value