The seven asset classes — where the price lands.

Section 1060 allocates a purchase price across seven asset classes in a fixed priority, I through VII, where each class absorbs up to its fair market value before any value spills to the next, and Class VII — goodwill and going-concern value — is the residual that catches whatever's left. In an agency deal the allocation concentrates in the back three classes: a typical sub-$5M agency runs Class V at 5–12%, Class VI at 45–60%, and Class VII at 20–35%, with Classes I through IV minimal or zero because agencies hold little cash, securities, or hard receivables at transfer.

§ 01 · Where the value concentratesThe back three classes.

Class VI is the dominant class, and its three primary components carry the weight: the customer list at 30–50% of purchase price, the non-compete at 5–15%, and workforce-in-place at 3–8%. When Class III (accounts receivable) is included it runs 3–12%, but many asset deals exclude receivables entirely so the seller keeps pre-close collections and the buyer starts with a clean balance sheet.

§ 02 · How each class is valuedThree methodologies.

Each major component has its own valuation method. The customer list uses an income approach — a projected retention curve times estimated commission cash flow, discounted to present value — and typically lands at 30–50% of price. The non-compete uses a differential-value method — business value with the covenant minus business value without it equals the covenant's fair market value — and lands at 5–15%, with scope, duration, and geography driving the number. Workforce-in-place uses replacement cost — six to twelve months of compensation for the skilled team — and is often under-allocated, supporting a 3–10% Class VI allocation on larger agencies. Class V tangibles depreciate on their own schedules: five years for office equipment and vehicles, seven for furniture, fifteen for leasehold improvements, with some qualifying for bonus depreciation.

§ 03 · The non-compete seamThe most-negotiated line.

The reason the non-compete is the most-negotiated line in agency deals is that it's where the interests genuinely diverge — most of the allocation is collaborative because the buyer's amortization benefit is the same across Classes VI and VII, but the non-compete moves dollars between the seller's ordinary-income and capital-gain buckets. Allocations outside the 5–15% range face pressure from both sides: a 1% under-allocation invites seller pushback (leaving them ordinary-income exposure they didn't need), while a 25% over-allocation invites IRS challenge. And the customer-list valuation matters too — a 10–15% variance in that number can shift 5–10% of purchase price to or from goodwill, material enough to negotiate specifically rather than accept the seller's first schedule.

§ 04 · Why the ordering is the buyer's lensResidual mechanics.

The fixed I→VII ordering is what makes goodwill the residual, and that mechanic is the buyer's lens on the whole allocation: every dollar of defensible value assigned to a specific identifiable asset — the customer list, the covenant, the workforce — is a dollar that doesn't fall to the Class VII residual, and since Classes VI and VII amortize the same, the buyer's interest is mostly in supporting the allocations that survive IRS scrutiny rather than maximizing any single class. The discipline is to value each identifiable component on its proper methodology, keep the non-compete inside the 5–15% defensible band, and let goodwill be what's genuinely left over — an allocation built that way is one both the counterparty and the IRS can live with, which is the real objective.

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