Back to the issue of the portion of an appraisal of a bed and breakfast that gets allocated to goodwill....
My post was written with a less than favorable situation for a property that had a considerable amount allocated to goodwill. But that's not always the case.
B&B appraisals will often include two or three different methods to arrive at a value: comparative sales analysis (residential/land & building value), income approach and replacement cost. IF the comparative sales analysis approach to the appraisal indicates that the real estate value might possibly be greater than the income approach, if the buyer's continued use is the B&B, then the appraisal may consider both methods but place more weight on the income approach to value, therefore the potential of a lower value allocated to the hard assets and more allocated to goodwill exists. But if the business is good and the real estate value still outweighs the business performance value, then chances are the portion allocated to goodwill might be lower and the hard assets higher.
Simply put, let's assume ABC Inn appraises at $900,000. Let's assume it's a 5,000 square foot, very well maintained home built in 1900 with 9 bedrooms, 9 baths, a couple of grand rooms, a beautiful spacious kitchen, a detached garage/carriage house and it sits on 4 acres. There's a new roof, replacement windows, etc.
The location is desirable in that it's close enough to a popular town but far enough to offer a peaceful respite. This may have a higher real estate (asset) value than business value. Let's assume a residential comp for a home like this was $950,000 and the cash flow was such that the business value (income approach) was $600,000. In this situation, regardless of how the appraisal comes in, we can see that the goodwill portion of the appraisal isn't going to be substantial because the business value is lower than the real estate value. The appraiser may use a different weighted ratio of using both values to come up with a final appraised value.
So you can see there is no straight forward way of appraising this hybrid hospitality business. The best suggestion we can make to any seller is to keep up your business and the physical condition of your property to the best of your ability as it will help you in the long run!