Greatest Risk Facing Appraisal Businesses
Greatest risk: low fees or low cash flow?
A Recent Report From Texas
There has been a lot of buzz about the recent survey from Texas. The Texas Appraisers and Appraisal Management Company Survey published by Texas A&M Real Estate Center in conjunction with the University of Houston’s Hobby Center for Public Policy and the National Opinion Research Center at the University of Chicago reports the current condition of the appraisal industry in the state of Texas. 1,584 appraisers and 55 Appraisal Management Companies (AMCs) doing business in Texas were surveyed and findings from the report were released to the public in early November 2012.
A highlight from the Texas A&M University report regarding appraisal fees worth noting is as follows:
The majority of respondent appraisers received between $300 to $450 for a residential appraisal from Appraisal Management Companies, compared to receiving $350 to $450 from lenders, individuals, or other non-Appraisal Management Companies.
Assuming this information is accurate there does not seem to be much of a difference in the range of fees between AMC work vs. non-AMC work.
Another Report With Similar Findings
In light of the recent conversations regarding the Texas report, another survey introduced to me by George Harrison of The Columbia Institute was reviewed for comparison.
October Research and presenting sponsor Landy Insurance released a special edition of Valuation Review called “Voice of the Appraiser 2012.” This national survey of more than 1,000 appraisal industry professionals provided information regarding current appraisal industry challenges, opportunities, and insight into the operations and processes of today’s appraisal professional.
A feature in the Valuation Review special report called “The Cost of Being an Appraiser” shows the following highlights:
The majority of Voice of the Appraiser respondents marked “low fees as the greatest risk facing their business. Fifty-eight percent listed it as the greatest risk, while 26 percent said it was a high risk.
Like the Texas report, the October Research survey also discusses the topic of fees paid to appraisers.
According to 52 percent of survey takers, the typical appraisal fee is $300 to $400. The second largest majority at 22 percent sees a fee of $200 to $300. A fortunate 16 percent regularly see fees of $400 to $500, while 6 percent see a fee of more than $500. On the other end of the spectrum, 4 percent say $100 to $200 is a typical [fee].
More Supporting Data… From Us
Recent state findings from Texas A&M University combined with October Research’s national report provide strong data on how much appraisers are getting paid. May I add another supporting data to these above-mentioned reports regarding average fees.
Please bear with me while I take a moment to do a shameless plug about the company I represent. Don’t worry; there is a point to this. Since 2009, Treasure Valley Factors have purchased thousands of invoices from appraisal professionals looking to get paid much quicker than waiting weeks or months. During the last three years, Treasure Valley Factors have found that appraisers are getting paid an average fee of $402 in 2010, $383 in 2011, and $418 in 2012 (as of the end of September).
What can we find from the data provided by these three sources? We can conclude that a state report, a national survey, and data from a factoring company with appraisers in at least 30 states all point to fees ranging from $300 to $400.
Greatest Risk Facing Appraisal Businesses
Without a doubt, low fees will always be a topic of conversation. I completely understand. If my wage was reduced in half and at the same time I continue to provide a high quality level of work, I would be unhappy also to say the least. This is the unfortunate reality for appraisers across the country. You are no longer making money like “back in the days” as some appraisers would put it. But there is something more important to focus on and worry about than low fees.
The majority of the respondents as reported in Valuation Review feel that low fees are “the greatest risk facing their business.” I have to respectfully disagree. Being in the factoring profession and working with businesses of all types, I feel the greatest risk facing ANY business is poor cash flow.
Cash flow is crucial to the life of your appraisal business and without it your business will fail. Having swift, sufficient, and steady cash flow guarantees that payroll, taxes, and other financial obligations are met. It is this challenge that all business owners must tackle in order to stay solvent.
Let’s say, for example, you were paid $1000 per appraisal. This increase in fees can definitely help your business’s bottom line. But if you do not receive your money for at least 2 months, then you’re still in a tough spot until you get paid. You must differentiate profit (amount earned minus the amount spent in buying, operating, or producing something) and cash flow (money being transferred into and out of a business).
A Florida appraiser that I met at Valuation Expo explained it perfectly. He said that he has a lot of business. In fact, he is so busy that he doesn’t have much time to enjoy the weekends. But since payments to him come very slow all he is doing with that money is “filling holes” rather than putting the money towards growing his business.
I would like to see in future appraisal industry surveys or reports how long it takes on average for appraisers to get paid by AMCs, lenders, individuals, or other non-AMCs. Negotiate your fees AND make sure they honor YOUR payment terms. Growth of your appraisal business will not come from increased fees alone, but also in the ability to promptly collect on completed appraisal work.