ALOFT = “A Lack of Freaking Talent”
When I read the announcement that Fifth Wall funded a relatively new startup called ALOFT, I and many of my peers were confused on what the value proposition actually is. Backed by a VC, including some of the biggest…
In addition to Fifth Wall, Aloft’s backers include VC firms Andreessen Horowitz and MetaProp, Zillow and Pacaso co-founder Spencer Rascoff, Built CEO Chase Gilbert and Doordash executive Gokul Rajaram.
…means that this funding is very expensive for ALOFT but they are trying to disrupt a very low-margin industry. I thought of the following acronym translation, not aimed at the management team, but befitting of the staffing problem they will face:
ALOFT = “A Lack of F***ing Talent”
“A shortage of home appraisers is bottlenecking the housing market, delaying closings and putting buyers at risk of missing out on low interest rates.”
They are getting funding to hire more appraisers (there is a chronic supply problem of competent appraisers that will work for less than the market rate) and it’s important because we are aging out. Appraisers won’t work for them unless they pay more than what appraisers are making during this boom.
In other words, ALOFT’s reason for being doesn’t solve the stated problem of not enough appraisers. They are sort of inferring they will solve the problem. How? By creating a crappy AVM like everyone else and trying to bypass appraisers? By training younger appraisers for and offering very high wages to pull them in? The main reason the industry is aging out is that the fees are too low and work too sparse for trainees.
I see this as further evidence the tech sector has no idea what the appraisal industry does and that there is way too much capital sloshing around looking for a home. The fintech world has wildly overhyped the valuation space – think Bowery Valuation and BBG in commercial valuation when you look closer and speak with ex-employees.
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Hmmm why won’t I bring on a trainee? Well maybe the last time this happened, just before the crash in ’06, there were so many of us that my peer who started in 1985 said the fees for an appraisal drop to what they were in the early ’90’s. Right now I’m getting 40-50% above my 2020 standard fees, so that’s why I’m not taking on a trainee plain and simple.
I’m trying to figure out how to sell something worth $00.00 TOO!!!
While amc’s and tech companies involved in appraisal distribution boast about record setting business growth. There is not a shortage of appraisers, but there is a shortage of appraisers willing to work with GSE’s as roughly half of all licensed appraisers no longer show up as having provided any services which land in the FNMA CU database.
Adding more middle management will not solve the problem of there being already an excess of middle management. Nor will computers successfully replace humans in a predominantly human business. But that’s not what this is about. Previous post reference for your consideration below. ‘It’s just getting started’ as these companies seek to reform the real property and valuation industry to become more accessible to corporate investment strategy. Hammer this same point I suppose.
What they’re doing is hiring as many certified appraisers as they can (these are generally lower performing appraisers probably bottom 50%) and then training them to make them top 20 percent quality and then using these certified appraisers to train an army of trainees. They’re also taking bifurcated appraisals and marketing heavily that they’re an inclusionary company and market that they have many minority employees or women employees since there’s a perception of bias in the appraisal industry. They’re also joining the appraisal foundation and will likely make efforts to sculpt rules and laws in ways that benefit them. I’m not sure if they’re taking orders at below market fees but I suspect they are just to break even although they have higher overhead than the average appraiser since they hire more staff to take care of the administrative functions of an appraiser. There is some scale in doing that but only when it is busy, now that it’s slow they’re losing money and firing anyone they can. They’re leaving the door open to any trainee they lay off and tell them to come back when they’re certified—presumably under the supervision of a non-ALOFT appraiser. I know this because I have a trainee myself i’m almost done training and she’s a minority so they use her likeness in their marketing even though they laid her off. She’s about to get her license through my efforts not theirs and they will offer to bring her back and she will likely go because they can afford to pay her a salary even when it’s slow due to VC funding, not any entrepreneurial engineering. She was annoyed when ALOFT stopped using Spark to import comps just because True Footage bought Spark. Both of these companies represent that they’re cutting edge tech companies but they use the same things most appraisers use they just add more admin staff with their VC money. The big money could be made by making new software to write reports since Total is expensive when things are this slow.
I think some basic things can be done to make administrative tasks much easier for an appraiser would be eliminating all of the many AMCs that exist and creating a simple login with a single portal and single login and password so we can reset one password every 90 days instead of 50 passwords every 90 days and not provided by a company like ANOW cause their system doesn’t work. Also instead of constantly uploading our credentials to all these different companies just have one place to do it.
Along these lines ANOW has partnered with UWM to assign work and UWM is originating probably the most in my market area. ANOW told me they’ve got about 120 appraisal
companies in my market that cover UWM and I’m one of those 120; however I’ve never received a single order from them even though I can offer same day or next day turn time and have more experience than their average appraiser—the reason for this is another VC backed firm True Footage joined their list and sucks up every appraisal before it gets to a normal independent appraiser. The way things are setting up it seems like it will create another shortage of appraisers because many people will likely need to get into a new career since they cannot afford to not make money for long periods of time like ALOFT and True Footage. This shortage will allow ALOFT and TF to train a lot of appraisers if they can afford to continue losing money but what their appraisers don’t know is they’ll never make the kind of money they hope to make. I think I may be partly to blame because I was on millennial money discussing the kind of income I was able to make as an appraiser and that was viewed 650k times but even they go over the number of hours I work so it’s not like you can make 280-360k working 40 hours a week or even 50 but I think ALOFT and co is offering 120k for certified with 60k bonus if you have 3 trainees producing 25 assignments per month so you max out at 180k and maybe you’re working 40-50 hours a week instead of 70-80? To me the profitability of these companies seems anemic and as an investor I would not invest in them. They only way they would become profitable is by lowering they pay of their employees or changing the rules in a way that gives them a larger advantage or writing their own appraisal software which would essentially challenge Corelogic which I don’t think is possible.
I got my realtor license six years ago and got my brokerage license earlier this year since I had more time due to orders slowing when rates increased. My appraisal company still receives many orders that are private orders not lender based and that’s my focus now. Next year I’ll probably make more from commissions than from appraisals. As a realtor I got my first call from ALOFT a few months ago asking to schedule an appraisal for my listing and I asked the admin person who called me to just tell the appraiser to schedule the showing through ShowingTime and she explained to me that the appraiser is new to the market so he didn’t have access to these tools yet so she was doing it for Him so I instinctively asked if he had geographic competency since this property I listed was in a rural market and it was manufactured and it was high end for the market of manufactured homes. She said he’s new to the area but he has a trainee tagging along with him that is from this area. To me this didn’t sound like a good team to have perform an appraisal so I was able to get the order reassigned to a local independent appraiser not with a big appraisal company. Hopefully other agents/borrowers have the good sense to interview their appraisers but my guess is most don’t know what questions to ask to determine if an appraiser is really qualified to be performing appraisals in their market nor do they care—they just want it fast, cheap, and above contract price.