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...s discussed at conventions and on golf courses, but how do they contribute to...ppearance, it’s more valuable. Three generally accepted mathematical models e...

... a current study show that 90% of all insurance agency acquisitions lose money! A primary reason is that buyers and sellers are using "average agency value" or "fair market value" as the price. We've all heard these terms discussed at conventions and on golf courses, but how do they contribute to unprofitable acquisitions? Let's discuss both terms and take a brief look at what goes into an agency valuation. AVERAGE AGENCY VALUE First, average agency value is exactly that: An average. If you have a perfectly average ... , this value is for you. However, all agencies are not created equal, and chances are good that your agency has certain features that are better or worse than average. Agencies that are growing, are being managed professionally, and have large books with their companies are worth more because their futures are better. Similarly, agencies with riskier futures are worth less. Total agency values usually range from .5 to 4.0 times revenues — a huge range. To assume that your agency falls exactly in the middle is simplistic and unrealistic ... higher price. Do the other agencies have a lot of Life income? If they do, he should sell his agency for even more. If he sells his agency for the average agency value, he priced it too low! Average agency value is great for generalities and discussions over the eighteenth hole, but let's leave averages on the golf course! FAIR MARKET VALUE This is the most common valuation method, based on IRS rules and a presumption of what a hypothetical "reasonable" person would pay for an agency. Fair ...