Determining What to Charge for Appraisal Fees
Charge too little and you can’t cover your expenses
Have you ever asked yourself why gasoline prices seem to fluctuate so dramatically? Maybe it’s the weather. Perhaps it is a conspiracy in the Middle East. Surely the politicians are to blame. To be sure, the correct answer is complicated and likely multi-faceted. There is much that goes into what your card is charged at the pump, but not much the common man probably understands. You can bet however that those who make these decisions do indeed know and understand how it all works. Have you ever wondered why a Big Mac will set you back $3.99 at McDonald’s, yet any size soda will only cost you a buck? Rest assured, these decisions are not determined on a whim. Successful businesses understand costs and thus are able to properly determine correct prices to remain viable in the current market.
What do you charge for your services?
What about appraisers? What do you charge for your services? More importantly; why? If you received a phone call today from a potential customer for a standard appraisal, what would your fee be? Would it make a difference if it were an attorney, a homeowner, an AMC? Does the type of assignment or even the type of customer play into your fee decisions?
As appraisers, we spend a lot of time complaining about our low fees, but where do those fees actually come from? Why is $350 per appraisal a common number in many areas? Who determines fees and how? Is it tradition? Is it just because that is what it has always been? Are they set in concrete? Can we realistically change/raise them? We have the idea that appraisal fees are what they are and cannot be changed (like touching the Ark of Covenant), but does that perception meet reality? Maybe it is time for us as business owners to step back and get to the basics of costs and fees.
Within any business, there are hard costs and soft costs. Hard costs are basically the same every month. They include things such as your building rent, internet access charges, payroll, MLS membership fees, your cell phone bill, etc. Though they may fluctuate slightly, you can basically plan on paying the same fee for them month after month after month. Furthermore, these are costs you incur whether you do 1 appraisal or 100. Soft costs, on the other hand, are different. They will change based on your volume. They include such things as gasoline, print cartridges (another reason to go paperless), contract labor, taxes, and vendor portal usage fees. There are reasons to like and dislike each type of charge. Business owners like hard costs because they are predictable. They can be planned for. On the other hand, when volume is low and times are lean, hard costs are difficult sometimes to satisfy. Soft costs are liked because they are easier to pay when they come due. A high volume means a high income to satisfy obligations. Yet, they are not easy to budget for because they are so volatile. The big question here is, do you know what your hard and soft costs are? I am not asking if you know the definition of the two. Rather, I am asking if you, as a business owner, know your own numbers. Do you know how much you spend every month in hard costs? Do you know how much, per appraisal, you spend on soft costs? The answers to these questions are essential if you expect to remain in business long-term.
The above measure is not as difficult as it at first might appear. Begin by either getting out your receipts from last month and going through them or just go to your Quickbooks (or whatever financial software provider you use) and start putting purchases into two categories; hard and soft costs. Do that for at least two other months from earlier in the year to give an accurate picture. What? You don’t track your expenses that closely? Well, now you know where to begin. Once you have the data you need, it is now time to start analyzing. Don’t worry, you are an appraiser. You can do this!
Once you have determined your hard and soft costs (as well as a realistic monthly estimate of your volume), it is now time to look at your competition. Do you know what Mary T. or John D. Appraiser down the road are charging for a typical appraisal fee? It would be ridiculous to determine your fees without a working knowledge of what other appraisers, doing similar type work in your area, are charging. Otherwise, you could charge whatever the devil you want. Fact is, you live and work in a capitalistic society where competition matters. Charge too little and you can’t cover your expenses and still have something at the end of the day to take home to your family. Ask for too much and your potential clients will simply choose a comparable appraiser whose fees are less. You have to find a happy medium.
Though there are a lot of moving parts here, there are essentially only two, main components (determining costs (both hard and soft) and knowing your competition). The problem here is that I dare say most appraisers look only at the latter and pay very little (if any) attention to the former. It is not easy to accurately determine your soft and hard costs. It takes work. With so much else vying for our time, this portion often gets neglected. Do not allow it to. If you need to pay an accountant or financial genius to help you out, do it! It will be well worth what you put into it.
It is in step 3 that the real magic happens. This is where you must finally determine what your fees will be on a typical assignment. Frankly, some guesswork must play out here. Though you have some hard numbers on your costs and a pretty good idea as to what your competition is doing, you still have to determine what it is you will do. If I could offer any advice at this point, it is to aim high. You might be surprised at what the market will actually sustain. Maybe you have always charged $350 per appraisal and you can indeed make a living at that amount. What would it do for you and your business to raise that fee to $375? Too much? What would even $365 do for you? Would your clients sustain you in such a minor change? There is only one way to find out?
So, what determines your success in finding the perfect fee in order to run a successful business yet not be constantly passed over for lower fees being charged by your competition? First of all, it is not all about numbers. I assume that, like me, you do not always go for the cheapest product or service out there. Successful consumership usually means not picking the highest prices, but not choosing the lowest either. The old saying that you get what you pay for is usually true. Normally, I look for a mid-level product for a mid-level price. As an appraiser, there are ways to make your product superior to all of your peers yet not necessarily charge the highest fees. Even in the world of AMCs, your end product does indeed matter. Your clients do care about your quality and turn time. I know. I know, but they really do. No really, they do!
Over the past several years, I have been able to successfully develop a business model that allows us to work more efficiently, but not cut corners in the meanwhile. challenging appraisal world.Sometimes it is called working smarter rather than harder, but it essentially allows us to be in a different league than our competition. We are able to keep our costs at a minimum, our productivity high, our quality control strict, and our fees in line (if not slightly less) with (than) our peers. Know your costs. Understand them intimately. Be aware of your competition. Understand not only their fees, but their expertises and weaknesses. Merge these two components and you will know exactly where your fees should be. This is a key to a successful appraisal office in today’s challenging appraisal world.
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interesting article that assumes that lending appraisers as a group are in control of appraisal fees. That assumption is not reality, since AMCs/lenders dictate the appraisal fee. the lending appraiser either accepts the directive or the AMC/lender moves on to another appraiser who will accept the stated fee and turn time. Pretty simple method.
IN THEORY (DREAM WORLD)
2009 Fees $400 x 3 = $1,200
Add $300 for HUD Home Inspection
IN REALITY
Leroy hit the nail on the head. You will be paid the fee that the AMC agrees to pay you (assuming they don’t declare bankruptcy like so many others).
Dustin hit on the answer, though it wasn’t necessarily the specific point of his article. Gas prices in California were $4.25 to $4.50 when oil was last at $100 a barrel. A week ago they were $50+- a barrel and our pump prices were still over $4.00 a gallon. We are told ‘environmental’ mandated blended methanol is the cause of the $1.30 higher pricing than anywhere else in the Continental US. When those environmental laws were being passed we were told they’d only add from $0.05 to MAX of $0.15 per gallon-NOT $1.30 or 43% more! We KNOW that California politicians have also very recently heavily increased gas taxes in their never ending war against internal combustion. I’ve spoken with friends in the petroleum industry. They readily concede that price manipulation; price fixing and gouging IS taking place, and it happens because refiners know no one will do anything about it. Why? Because politicians blame THEIR tax increases on greedy oil companies! Both sides working together to confuse (& cheat) consumers.
Today, oil dropped nearly 20% to about $43 a barrel. My gas pump price is still over $4.00 a gallon/ How odd. Supply and demand economics for oil products have simply evaporated in my state due to political and special interest manipulation..
The SAME applies to appraisal in America. Fees ARE being manipulated. The largest AMCs are also members of REVAA which is an AMC Industry Political Action Group. They reportedly charge annual membership fees of $75,000 for their largest voting board members; and monthly dues of $1,000 a month for other AMCs that want to be members too. The high fees keep the riffraff (small AMCs) out of the club.
Yesterday, I received an article from WorkingRE, a publication of my E&O insurance provider reporting on the activities of Coester ( a large East Coast AMC) and Virginia’s AMC regulatory Board. Every appraiser in the country should find & read that article. (Search WorkingRE and Coester)
Recently Coester, an REVAA association member filed suit against the Virginia State Appraisers Board for refusing to approve their AMC license. They allege restraint of trade and a host of other far fetched claims. One is that the VA AMC / Appraiser approval ten member board has 6 appraiser-interest members and only one AMC member (who is also an appraiser) plus the other 3 members. My question would be why there are ANY AMC members on a State board regulating appraisers and companies that control them? Coester and its owner have allegedly had numerous violations of multiple states appraisal rules, regulations, laws and Dodd Frank up and down the southeaster US. These have included operating without valid licenses in states; non disclosure of disciplinary actions by principals of the company and a host of other CONSENT acknowledged violations that should prevent ANYONE from doing business in our industry at all.
Instead of restricting themselves to states where they hold a valid AMC license, they sued and the Virginia State Attorney General is urging the Virginia Board to agree to an extension that would permit this unlicensed company to continue doing AMC work in the state until at least December, 2015. Why is unknown. Clearly the Board took the right steps to begin with. The State AG should be backing them up in their decision-not acting as a de facto agent for Coester.
I think the Virginia Coalition of Appraisers has done an outstanding job of getting minimally fair treatment of appraisers legislation passed in their state. Several other state’s appraiser groups have done the same thing.
But how many of these state coalitions can afford to take on the REVAA and its war chest? REVAA has made it abundantly clear that they intend to sue individual states AND state coalitions wherever they have to. They will not willingly give up THEIR Large AMC Only monopolies.
More than ever, we all need to come together in a single national appraisal group to oppose this specific trade group, as well as other national scope issues that arise. We should not expect Professional’s State Coalitions to be replaced, but rather to be augmented by their members and others also being members in the only large, unrestricted appraiser protection membership organization in the country today.
I am talking about the American Guild of Appraisers. The AGA is a Guild within the Office and Professional Employees International Union (OPEIU) of the AFL-CIO. Americas oldest union.
Contact Jan Bellas at http://www.appraisersguild.org .Or call 1 (800) 660-1835. We don’t charge anything close to $1,000 a month! Right now, first year membership is only $225 and can be paid in quarterly installments. Normal annual membership is only $375; a LOT less than the oppositions $12,000 a year dues.
If, after reading WorkingRE’s article about this issue you still don’t think you need to join with anyone outside your own peer association, just ask yourself this: “Why didn’t THEY warn me that this is going on?”.
Because they have other more isolated self-interest issues on their radar. They are not focused on ALL of OUR rights as licensed & certified professional appraisers.
The AGA of OPEIU AFL-CIO IS focused.
Quote: “It is in step 3 that the real magic happens.” “What would it do for you and your business to raise that fee to $375?”
Really?…. $375? Does anyone here go to the grocery store? Have you bought a new set of tires lately? We have not charged $375. in years! Other than VA which is $400. (about 4 a year) the base fee is $450. and it is time to increase that! There is no magic at $375.
You may remember the Eddie Murphy movie…Coming to America. “one day you will move up to fries and that is when the real money begins!”
Wayne I think you posted as a reply to my post in error. I certainly am not now or EVER advocating $375 as a customary OR reasonable fee. I’m a $600-$650 base fee advocate.
Sorry Mike! I was not trying to respond to your post. I know you are not one of those trying to UP our fees to $375. I am with you on the $600-$650 base fee plan. If someone is going to waste time coaching appraisers in determining fees why do they not get real?
No problem Wayne, YOUR point was and still is valid. I think we all need to stop referring to sub par appraisal fees as ever being adequate; even in our illustrative written examples. I have also ceased using the phrase ‘customary’ since it merely opens the door to selective parsing. I don’t give a damn what is customary anymore. I’m only concerned with what is reasonable.
FINISHED!
Fellow appraisers, please visit http://mfford.com/html/c___r_fees.htm
Apologies for using my personal site but logistical and time constraints made it necessary.
It is to read a draft proposal for minimum national appraiser fees. I appreciate some believe no one other than themselves should set fees, and I concur. Except, in the real world of today where someone (lenders and AMCs) are ALREADY SETTING your fees. If not directly, then through ruinous less than customary OR reasonable fee competition.
Im interested in your meaningful, constructive feedback as well as comment & discussion here.
For those that insist ONLY regional fees are practical, this same system works for the lowest to highest regions of America. Subtract 13% for low cost areas; add up to 9%+- for higher cost areas.
Operating premises were:
1. AMCs are here to stay. Liked or hated, they are part of the chain now.
2. LENDERS want AMCs to offer one size fits all pricing. This MAY come close to doing so baring complex assignments. Even there, an inferred hourly equivalent is suggested.
3. If WE don’t set “reasonable” minimums for ourselves, then others will do it for us (or to us).
4. Framework allows for and includes inducements for trainees or less than certified appraisers-who have been largely excluded or ignored by AMCs in recent years.
In addition to posting here, PLEASE also email comments to JanBellas@appraisersguild.org
We are going to start reaching out to state coalitions and other appraiser peers groups. We hope to incorporate helpful comments or views in that effort. In the meantime our parent union is already being contacted to see how we can best proceed.
Thank you for taking the time to read and respond. Mike Ford, AGA; OPEIU/AFL-CIO
hmmm….interesting comments…..the bottom line is that the appraisal industry is unable to dislodge the AMC business model from the lending appraisal process. The AMC BUSINESS MODEL IS NO FRIEND OF THE APPRAISER. All the dialogue about low fees is basically useless because we, the appraisal professional have NO control. The appraisers efforts to “just say no” the AMC low fees and ridicules turn times, has only created in perception with the AMC and lender interest groups that there is a industry shortage of licensed appraiser, which is quite laughable. We appraisers know there is no shortage, it just that the “just say no” efforts have place a inconvenience on AMC/lenders in finding appraisers to accept their unreasonable appraisal terms. We know there is no real shortage. Unless the appraisal profession can muster up enough influence to modify or delete the AMC business model, all the charts, dialogues, comments and blogs will be ineffective to bring effective change. It’s really become a David and Goliath fight. To date, Goliath is winning.