Why choosing the right valuer in a partnership dispute is essential

While everyone sets out with good intentions, in business it’s common for disputes to arise between partners. This can lead to one party deciding to leave the business by being bought out, or the venture dissolving completely. 

Deciding what counts as ‘fair share’ for each partner depends on how much the business is worth. A valuation will be required to figure this out. In real estate, this isn’t always a straightforward process because assets are often intangible. 

Here’s where exiting partners often go wrong and how to ensure you keep the money you deserve if you decide to leave your agency or purchase your partner’s share because of an irreconcilable dispute. 

Real estate agency valuation mistakes

The first pitfall of the valuation process during a partnership dispute is expecting your accountant to accurately value your real estate agency. While these professionals understand financial statements and tax implications, their expertise rarely encompasses the entire value of the business. 

Accountants typically focus on tangible assets and historical financial performance. They may not know how to measure intangible elements such as goodwill, client relationships and market share. This narrow focus can lead to the valuation failing to capture the agency's genuine market value. 

The next mistake is approaching a generalist business valuer who applies standard methodologies. These valuers don’t account for industry-specific factors like rent rolls, commission structures, local competition, risks and current benchmarks. Again, the resulting valuation may not be accurate. 

The third mistake is failing to agree on a valuation methodology before you and your business partner go separate ways. If independent evaluations are conducted using different formulas and figures, each partner can come back with a very different amount in mind, which can serve to lengthen the dispute.

If you each hire your own valuer (ideally you will both find someone who has real estate industry experience), make sure they are comparing apples with apples and are prepared to share evidence to back their findings. 

Read more: A tale of two valuations

Why you need a real estate-specific valuer for your real estate agency or rent roll

Real estate and property management agencies operate within a unique business model. It makes sense to work with a professional valuer who understands the ins and outs of the industry.

For example, the valuation of a rent roll involves assessing components such as the length of time the agency has managed the properties under management, commission rates, fees and the footprint of the PUMs.

Read more: Ten questions to consider during a rent roll valuation

Without a comprehensive understanding of these elements, valuations may be inaccurate, leading to further disputes between partners.

Think about a couple coming to you wanting to sell their house because they are separating. You would always recommend they seek professional advice from a property expert. The same applies to your situation during a business partnership breakdown. 

How to exit a real estate partnership with confidence

No matter how difficult things are, if you decide to leave a partnership or your partner wants out of the business, aim to remain professional as you prepare an exit plan (ideally, you will have mapped this out at the beginning of your journey). 

Be aware of the requirements under the Partnership Act in your state. For example, in Victoria, the Act includes a number of clauses about dissolution and the distribution of assets, which you will need to adhere to. In addition you may have a shareholder agreement that deals with partnership disputes and may also address a method of valuation or a pre-determined multiple. 

You will likely need legal advice as well as the support of a specialist valuer who understands the real estate industry. Take your time, be prepared to negotiate and aim to keep things civil as you move towards your next chapter.