Family Business Director The Third Appraiser Isn’t There to Split the Difference
Key Takeaways
- A third appraiser’s role is independence—not compromise.
Contrary to common expectations, third appraisers are not engaged to “split the difference” between two valuations. Their mandate is to apply the buy-sell agreement as written and reach an independent, defensible conclusion of value. - Process credibility matters more than speed or comfort.
While shareholders may want quick resolution, the real value of a third appraiser lies in transparency, discipline, and adherence to valuation standards—even when the outcome is uncomfortable or unexpected. - Many valuation disputes stem from buy-sell design, not appraisal failure.
Ambiguous standards, unclear assumptions, and unrealistic expectations embedded in buy-sell agreements often set the stage for conflict. Treating these agreements as living governance documents can prevent disputes before they escalate.
After watching some controversial calls unfold this past weekend during the NFL playoffs, I couldn’t help but draw the correlation between throwing the challenge flag and looking for a third appraiser. Overtime in a playoff game, win or go home, the situation is as intense as it gets. Similarly, when a buy-sell agreement calls for a third appraiser, the stakes are high and it is fairly late in the game.
When the replay booth in New York is called, a decision on the field has already been made; one side disagrees with the conclusion and requests an independent review in hopes that a new conclusion is reached. Sound familiar? For third appraisers, the main difference here is that two valuation conclusions already exist.
Trust may already be strained, and the parties involved might be looking for closure more than precision. In this context, a common misconception emerges that the third appraiser’s role is to “split the difference” and bring the matter to a close. That assumption is understandable, but it is also wrong.
Why the “Split the Difference” Expectation Persists
From the perspective of shareholders, a midpoint between the two valuations might seem fair. If two valuation professionals disagree, meeting somewhere in the middle may seem like a reasonable compromise. But most buy-sell agreements don’t provide for third appraisers to broker compromises. More often, third appraisers are appointed to render an independent conclusion, consistent with the agreement’s terms, valuation standards, and the underlying economics of the business.
What the Third Appraiser Is Actually Asked to Do
In most buy-sell agreements, the third appraiser’s mandate is narrow and specific.
They are typically asked to:
- Review the prior valuations
- Apply the valuation provisions of the agreement as written
- Conduct an independent analysis
- Reach their own conclusion of value
Nothing in such a mandate suggests averaging outcomes or arbitrating fairness between positions. In fact, treating the third appraiser as a mediator undermines the very reason the mechanism exists: to replace disagreement with process integrity.
Why Independence Matters More Than Resolution Speed
Third appraiser provisions exist because family businesses recognize a hard truth: valuation disagreements are not always resolvable through discussion alone. When that moment arrives, the credibility of the process becomes paramount.
The third appraiser’s value lies not in where the conclusion lands relative to the prior valuations, but in whether the conclusion is defensible, transparent, and faithful to the agreement. Sometimes that conclusion is closer to one valuation than the other. Sometimes it is outside the range entirely. That outcome can be uncomfortable, but discomfort can sometimes be evidence that the process is working as intended.
Designing for the Moment Before It Arrives
How a third appraiser approaches their role sends a powerful signal to shareholders. A midpoint outcome without clear analytical justification may resolve the immediate problem, but it can quietly erode confidence in future processes. Shareholders may conclude that valuation outcomes are negotiable, or that persistence matters more than discipline.
Many of the frustrations associated with third appraiser situations are rooted not in the appraisal itself, but in how the buy-sell agreement was designed. Ambiguous valuation standards, poorly defined assumptions, or unrealistic expectations all increase the likelihood that shareholders will be surprised or dissatisfied when the third appraiser is engaged.
Directors who view buy-sell agreements as living governance documents, rather than static legal instruments, are better positioned to avoid these moments altogether. And when disagreements do arise, they tend to unfold within clearer, more trusted boundaries.
Conclusion
The third appraiser’s task is not to split the difference between two opinions, but to apply judgment, discipline, and independence to a situation that has outgrown mutual agreement. Their role is not to make everyone happy, but to make the process credible.
Family businesses that understand this distinction are better equipped to navigate transitions without turning financial disagreements into lasting fractures. In the end, the true value of a third appraiser may not be the number they conclude, but the confidence they restore in the system that produced it.
