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For The Manager: Picking the right valuation in buy/sell transactions

TWO DIFFERENT values are important to the owner of an expensive antique. If it is passed on as an inheritance, the IRS wants to know the fair market value; an insurance company, however, might want to know the item's replacement value. A slum

By Chris Burand | Updated on September 30, 2004

TWO DIFFERENT values are important to the owner of an expensive antique. If it is passed on as an inheritance, the IRS wants to know the fair market value; an insurance company, however, might want to know the item’s replacement value. A slum landlord might only be interested in the actual cash value of rental units, but an insurance company might want to know the replacement cost. A homeowner in an economically depressed town might only want to insure his or her home for market value, but an insurance company will probably want to insure it for replacement cost.

Most insurance agency owners, to whom these different values are almost second nature, think of their own agencies as having only one value. Like the above examples, though, agencies have more than one value. Given the number of agency sales today, I have a strong feeling that some owners are selling for less than they could, and others are asking for too much, because they do not know enough about the different values that apply to every agency.

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