As appraisers, I’m sure you have heard the following questions at some point in your career:
When are you going to hang up your own shingle? When are you going to start your own business?
According to the U.S. Valuation Professions Fact Sheet, published by the Appraisal Institute in early 2019, there are 78,015 certified appraisers in the United States. Out of this population, the fact sheet indicates that 45.8% of certified appraisers label themselves as sole proprietors. This should not be a surprise, as appraising has always been an industry made up of small business owners. However, your decision to start your own appraisal business may not be as a one-person show. Perhaps you have growth in mind. You envision growing a team, teaching new appraisers, and scaling a business.
If you are thinking about becoming a business owner yourself, there is much to deliberate. This blog will serve as a starting point. For a list of even more items to consider, refer to this article.
Where to begin? There is always the option to start your business from scratch. Alternatively, you can purchase an existing business. Should you decide to start from scratch, there are fewer upfront costs. However, building a business from the ground floor is no easy task.
Purchasing an existing business comes with risk, as there is either an upfront payment or liability. Purchasing an established business far exceeds the startup costs of a new, 1-person company. In this case, you want to buy an established business with a good reputation and solid revenue. The average age of appraisers is high. So, it’s likely many appraisal businesses will be available for sale over the next few years.
Generally, an existing business will sell based on a revenue multiplier. Valuation Magazine published a great article on this topic in the first quarter of 2016, titled “Changing Hands”. This article quotes that gross revenue multipliers typically range from less than one to more than three. That’s a wide range. In many cases, it is possible to finance the transaction. Structure a deal paying the seller monthly based on a percentage of revenue collected for a specified period, such as five-ten years. The quality of the client base, data, and workflow processes have a direct impact on the value of an appraisal company. So, do the homework. Overpaying for an unprofitable client base and file cabinets full of old appraisals isn’t good business. On the other hand, a business with trained staff and modern technology will command more.
Ultimately, the decision to purchase a business or start your own will come down to what is best for your personal situation.
The question to ask yourself is: Which scenario will be best for generating profitable work?
If you decide to start your own appraisal business, you must build new client relationships with many different appraisal users. Some may include lenders, attorneys, municipalities, Departments of Transportation, taxing authorities, as well as many others. One way to build credibility is to publish a market segment survey of interest to your prospective clients.
Most appraisal businesses have a very heavy lean towards lending work, as lenders are among the largest users of appraisals. Getting on the approved list of a bank can run the gamut from simple to complex. In some cases, it can be as simple as calling the bank and asking to get on their list. Many times, however, it takes a lot of time and effort to get on an approved list. Once you are on the list, there is no guarantee any work will come your way.
When starting a business, these client relationships must be established. Alternatively, when purchasing a business, existing relationships need fostering. The seller of the business can make introductions. They help build a comfort level between the client and the buyer of the business. There is an inherent risk here since there are not typically any long-term contracts with clients.
Along with cultivating relationships, it is equally as important to have a marketing and online presence. Create a marketing plan that includes a way to introduce yourself. Think about how you plan to grow your business. Being accessible to your potential clients will drive business. Your quality of work will then drive recurring business. Check out the recent blogs about setting up a good website and creating a strong LinkedIn profile. When potential clients get your call, they check to see if you are “legit”.
Generating a consistent book of business takes a lot of time and effort. However, it is crucial to long-term survival. Once you generate the business, the next consideration is managing the workflow. In today’s lending environment, quick turnaround times are typical. It is not unusual to have turnaround times in the two-to-three-week range. With quicker turn times, it becomes more important than ever before to maximize efficiency.
The best way to maximize efficiency is to deploy technology in smart ways inside your appraisal business. In too many cases, appraisers are inefficient because they are reluctant to embrace technology. “This is the way I’ve always done it,” is not a valid reason. As an example, many appraisers still use digital cameras. Smartphones have a higher quality than basic digital cameras. As an appraiser and business owner, be open to stepping outside of the box. Take a look at what you’re currently using and ask, Is Your Technology Holding You Back?
If you are currently looking to start your own business, it’s a fresh start. Take time to look into what tools you can utilize to assist you in maximizing efficiency. If you have an established business, it can be difficult to see the forest through the trees. The realquantum blog page has a lot of articles specifically about tech, so here is a pretty good place to start learning. Now is the time to take a step back and make a plan for operating at optimal capacity. The future of your business depends on it. Good luck!
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