Buy-Sell Agreement Valuation Framework: A Practical Guide for Attorneys and Business Owners

Author: Brian Alwine | Director | CPA, ASA  

Published: February 23, 2026

Buy-Sell Agreement Valuation Best Practices

1. Define the Valuation Standard Clearly

Ambiguity in valuation terminology is one of the most common sources of post-trigger disputes. Every agreement should explicitly outline:

  • The standard of value (e.g., fair market value [FMV], fair value)

  • The level of value (control vs. minority)

  • Whether the interest is assumed marketable or nonmarketable

  • The premise of value (going concern vs. liquidation)

  • The valuation date (date of death, disability, termination, etc.)

  • Permitted discounts and premiums and the conditions in which they apply

Best Practice: Avoid undefined valuation terms. Legal terminology must align with valuation theory.

2. Avoid Static or Formula-Based Pricing

Fixed prices and simple formulas often fail as companies evolve. Common issues include: 

  • Fixed prices becoming stale and rarely updated

  • Fixed EBITDA multiples ignoring capital structure, growth, and risk

  • Formula pricing diverging from market conditions at trigger events

Best Practice: Use a structured valuation process performed by a qualified valuation professional at the time of the triggering event or updated periodically.

3. Establish a Clear and Efficient Valuation Process

Many disputes arise from appraiser selection and process design before the valuation conclusion itself. An agreement should address:

  • Whether the process uses a single appraiser or competing appraisers with an umpire

  • How the appraiser or appraisers are selected

  • Required credentials and professional standards

  • Timeline for completion

  • Allocation of costs

Preferred Structure: A pre-selected independent appraiser with periodic updates reduces uncertainty and conflict.

4. Consider Periodic Valuation Updates

Waiting until a triggering event to determine value increases risk. Benefits of periodic updates include: 

  • Improved alignment among owners 

  • Documented valuation history 

  • Greater transparency and defensibility

  • Shareholder acknowledgement of value over time (reducing future disagreement)

Governance Benefit: Proactive valuations reduce friction during emotionally charged transition events.

5. Align Valuation with Funding Mechanics

Valuation provisions must work in tandem with buy-sell funding structures. Agreements should clarify:

  • Treatment of life insurance proceeds

  • Whether funding sources affect enterprise or equity value

  • Avoidance of double-counting insurance

Key Tax Point: Valuation methodology and funding mechanics are interdependent and can have significant tax implications.

6. Address Discounts and Premiums Explicitly

Many agreements unintentionally create internal contradictions. Drafting should ensure: 

  • Control value frameworks avoid unintended minority discounts

  • FMV frameworks specify whether marketability discounts apply

  • No partial or inconsistent treatment that could invite expert disagreement

Governance Benefit: Clarity here materially reduces litigation risk.

7. Eliminate Drafting Ambiguity

Before finalizing the agreement:

  • Review the valuation language with a qualified valuation professional

  • Confirm consistency across shareholder agreements, operating agreements, and ancillary documents

  • Ensure defined terms are used consistently throughout

Key Takeaway: Well-drafted valuation provisions should be executable without interpretation.

The Redwood Perspective

A buy-sell agreement should establish more than a number, it should clearly define a coherent valuation system. Effective agreements create:

  • Clear valuation standards

  • Defensible and repeatable processes

  • Appropriate methodologies

  • Coordinated funding structures

  • Dispute-resistant governance frameworks

When valuation provisions are thoughtfully designed in advance, ownership transitions occur with stability rather than conflict. Contact us for assistance reviewing existing buy-sell language or designing a valuation framework tailored for your ownership structure and circumstances.

Frequently Asked Questions

  • A buy-sell agreement valuation determines the price of an ownership transfer when a triggering event occurs (e.g., death, disability, retirement, or termination). The agreement should clearly define both the valuation standard and the process used to determine price.

  • Many agreements use Fair Market Value, but the right standard depends on ownership structure, tax considerations, and legal context. The key is defining the standard explicitly and aligning it with the intent of the agreement.

  • It depends on the defined level of value and valuation standard. Control value frameworks typically exclude minority discounts, while Fair Market Value frameworks should state whether marketability adjustments apply to avoid ambiguity.

  • Periodic updates, often annually, help keep valuations aligned with current business conditions. Regular valuations also help reduce disputes and create a defensible history.

  • An independent, credentialed valuation professional is typically best. Recognized credentials include ASA, CFA, CPA/ABV, and CVA. An independent process improves defensibility and reduces conflict during ownership transitions.

About Redwood: We provide independent valuations for ownership transitions, including buy-sell agreements, shareholder disputes, estate planning, and transaction-related matters. Our team serves closely held businesses, attorneys, and advisors across a wide range of industries, delivering defensible analyses grounded in rigorous methodology and real-world experience. Our work has supported planning, litigation, and governance decisions where clarity and credibility are critical.

Learn more about our business valuation services | Schedule a consultation | When in doubt, please reach out.