Mind your Business (and Survive)

Editor's Note:  The message to appraisers in 2007 is that business is not only slowing down but it's changing also, and that those who want to keep appraising in the years ahead will have to pay greater attention to managing their businesses today. Here's what we hear from appraisers on how they are managing to succeed.
 

Mind Your Business (and Survive) 
By David Brauner, Editor 

Technology advancements, ever-more-accurate AVMs in particular, are both replacing appraisers and empowering them, with the boundless data points they are able to deliver instantly. They are replacing appraisers in certain transactions (home equity and secondary markets for instance) but also are enabling appraisers to combine their expertise with the instantaneous delivery of data. Appraisers, using their expertise to filter data, are providing a powerful combination of speed and accuracy. The unanimous advice we hear is to move past form-filler to "consultant," and to use new technology to gather data faster and cheaper.

Lewis Allen, VP, Chief Appraiser Option One Mortgage put it this way in last issue's cover story: Mythbusters: Are AVMs Stealing Your Data? "Appraisers should be embracing AVMS for use in the valuation process to give their reports more credibility, especially as the issues of fraud and pressure on appraisers become more intense. At Option One we're testing a hybrid system where, ultimately, we'd like to use the intelligent systems to provide an analysis of relevant data and then send an appraiser out to use their expertise to evaluate things like location, condition and marketability- how the property fits into the market. These are the things that an AVM can't provide and what appraisers are trained for."  
 

According to Allen, the business of data gathering has changed but appraising has not. Appraisers still use a system that is a vestige of an era that is decades old. "Thirty years ago when data was difficult to get, gathering it was a valuable service," said Allen. "With all the information available today in seconds on the Internet, pulling three comps does not have the value it once had. Today, we need to know how the property fits into the market. It's all about risk. We do not lend on value, we lend on the property. After all, if we foreclose, it's not the value we are taking back," Allen said. 

Creating a Win-Win 
In his presentation at Valuation 2006, Alan Hummel, SRA, explained the value of becoming a specialist in your market. It paid off for him and for a local homeowner who wanted to know the value of his property before listing it for sale. Because he is a local expert, Hummel knew the homeowner's property had development potential. He also understood the scope and complexity of the assignment and set his fee accordingly- four times higher than the "standard fee" of a competing but less informed local appraiser. The skeptical but savvy homeowner ordered both appraisals. The less expensive appraisal came in at a value of $175,000; Hummel valued the property at $875,000 with a report that detailed the subdivision potential. 
 

Another appraiser we spoke to, working in the Northwest, specializes in niche residential properties. Bob Craig says that some years ago he intentionally set his fees higher to differentiate himself from the pack and to slow down enough to be able to do the job right. He figures he's learned a thing or two in his 45 years of appraising and can bring that value to the clients who are willing to pay for it.

"I recognized that there was too much competition at the low-end of the fee range to make a reasonable profit. That's where the most competition is," said Craig. 

"More importantly, I realized that at those low fees you can't make any profit if you want to take the time to do the job right. So I made a conscious decision to raise my fees (to the highest range) and to not work for less. I knew that I would lose 30 percent of my clients. The clients I kept respect my work and want the job done right."

There are two kinds of appraisers Craig says- those who do the minimum required to get by and those who appraise to the very best of their ability on every job. He wants to be the latter. How does he get away with making more than his competition charges? "For the same reason people pay more for a Cadillac when they could have a Ford," Craig says.