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WARNING: Conflict of Interest! Appraising and Selling Dental Practices

By January 2, 2016January 21st, 2022Buying a Practice, Selling A Practice

Dental practice appraisers should NOT be appraising AND selling dental practices. That’s a clear conflict of interest. In the U.S., dental practice appraisers are regulated by the Uniform Standards of Professional Appraisal Practice (a horribly long name that is shortformed to “USPAP“). The “Ethics Rule” of USPAP says (U-8) that an appraiser must not have a compensation arrangement that is contingent on the attainment of a stipulated result OR the occurrence of a subsequent event directly related to the appraiser’s opinion and specific to the assignment’s purpose.   In other words: it would be unethical for an appraiser to provide an appraisal and then receive compensation from the sale of a dental practice which relies upon that appraisal. So why is this permitted in Canada? Simply put (and without boring you with the details), it’s because our appraiser industry and standards developed differently than in the U.S., where it is mandatory for appraisers to be regulated and follow USPAP.

So how could it be a Conflict of Interest?

Appraisers have various legal, ethical, and professional obligations to represent your interests. But there’s an inherent conflict when someone represents you and gets paid a commission after the deal closes. Think of it like this: real estate salespeople get paid 10% commissions only when the deal closes. They invest money in advertising, etc. But they want the deal to close fast so they can recoup their initial investment. This can create a conflict of interest because the selling dentist may be pressured into accepting less than what they deserve (or worse terms) just to close the deal.

Are We Conflicted When We Sell a Dental Practice?

No. The Ontario Real Estate and Business Brokers Act, 2002 permits lawyers to be involved in trading in real estate (which includes marketing the sale of businesses like a dental practice) so long as it’s part of them offering legal services (i.e. closing the transaction). We also checked with the Law Society of Upper Canada and the Real Estate Council of Ontario.   No Conflict of Interest. Period. And if you think about it: if we are having the practice appraised independently and our fees are not based on the sale price (we don’t charge 10% commissions; we charge fixed fees, depending on the extent of the legal and marketing work required). Finally, we don’t just market a dental practice for sale to our own dentist clients. We follow our client’s instructions – which typically includes marketing the dental practice for sale TO THE PUBLIC (which we do on www.DentalPlace.ca), or limit it to a handful of dentists who have approached the seller and have shown an interest in the practice. Remember: the dentist seller drives the bus; we follow their instructions (that’s what a hired gun is supposed to do).

Bottom Line

Get an independent appraisal done. We recommend Matt Bladowski of Dental Strategy (matt@dentalstrategy.ca). His wife is a dentist and he has been consulting dentists on practice management matters for years. He went to business school with me (MBA at Schulich) and he grew his wife’s start up practice from 0 to over 5,000 patients in 5 years. He understands dental. And he’s been doing appraisals for our clients for the past year. Best part: he’s not conflicted. He only does appraisals and doesn’t get paid based on the sale.

DMC