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We’ve been in an unstable era for a while now, whether we knew it or not. For at least ten good years, appraisers have had a flood of business. But it’s easy to mistake boom times for stability. Trouble has long been brewing.
Some of us are old enough to have experienced the inherent instability in the system.
By the mid-2000s, I’d built up a large residential and commercial appraisal business with a partner and was now striking out on my own. Then came 2008: I suddenly found myself with a three-year old appraisal firm, a large office building full of furniture and equipment, several employees and trainees, and two young children—as the global economy imploded.
The appraisal profession was rocked to its core. Our fees were cut in half overnight, and the AMC model suddenly walled us off from clients with whom we had worked so hard to build rapport. What was once a fun (to me) relationship-based business, where good service was rewarded with more business, was now nameless, faceless labor based solely on the ability to maintain a license and get on an AMC rotation panel. Our industry was no longer a meritocracy where the best business strategy won; it had become a commodity to be auctioned off to the fastest and cheapest.
That experience forced me to take a long, hard look at our business model—what had worked previously but was maybe no longer relevant, and what a winning strategy would be going forward. The biggest question for me was: Do I even want to be in this business if this is how it’s going to be?
I wanted a business that was relational instead of merely transactional. The value of a good client was one of the foundational metrics driving our strategy. We knew that a good client was worth hundreds of thousands of dollars, if not millions, to our business over the lifetime of that relationship, so we focused on overserving our clients in ways nobody else did. Prior to the 2008 dust-up, this strategy had helped us become a dominant player in our market. That option evaporated overnight, as many of our clients abandoned those relationships and started using AMCs to distribute their appraisal orders.
Asking myself whether I wanted to continue in this altered business landscape prompted some follow-up questions:
- What would my business have to look like for me to stay in it?
- What could we do to make it fun and profitable again if we couldn’t build relationships in the same way?
- What could we do to fortify our business to withstand another market shock in the future?
While the first two questions were catalysts for what ultimately became our strategy going forward, it was the last question that led me to a simple answer I already knew: diversification. If you want to hedge against the dangers of having all your proverbial eggs in one basket, do more than just one thing.
I don’t necessarily advise a new business to diversify too much—it’s important to nail the fundamentals before branching out into a variety of product and service offerings. But I am a proponent of diversifying your appraisal business once you’ve established your systems and can maintain high standards of service without extreme exertion. Developing multiple streams of income personally, as well from within your business, should always be a priority. If you don’t want to be held hostage by one type of client, one source of business, and one stream of income, add these new skills and income streams periodically as part of your three- to five-year goals.
One of the five commandments of building a profitable business is: You must control the things you can control if you want to have a solid business. If you aren’t in control of your clients, your fees, your market, or the main factors that drive your business, you’re always under threat by outside forces, like interest rates and government policy.
To that end, the appraisal business is ripe with opportunities to diversify and have revenue streams from multiple sources. Of course, the primary source of business for most residential appraisers has traditionally been the lending industry: refinances, HELOCs, and mortgages for the purchase of a home. This has been one of the industry’s greatest strengths and sources of income and security, but it becomes a tenuous proposition during times of market upheaval.
As we’ve seen recently with the rise in interest rates, when a business is too focused on one small industry segment, it’s more vulnerable to the market forces that affect that segment. If you don’t want your business to soar and then plummet based on the whims of the market, interest rates, fickle clients, and Fed policy, why not use your knowledge, experience, and skillset to serve the vast market of non-lending needs for appraisal services?
Some of the most common needs for appraisal and related services in the non-lending side of the industry are:
- Dissolution of Marriage (Divorce)
- Setting up and settling an estate
- Date of Death
- Cash Purchase
- Pre-listing
- FSBO – For Sale By Owner
- Tax Appeal
- Financial Planning – Tax Purposes
- Measurement Services
- Legal Review and Consulting
- Vacant Land Development
- Home Improvement
Shifting your business away from a primarily lender-based business requires a different mindset, process, marketing, and customer service strategy—and unlike the AMC model, many of these services DO reward strong relationships. So don’t think of diversifying as an obstacle; consider it a challenge—because anybody can make money when times are good. It’s the creative problem-solvers who continue to thrive during rough times that we want to study and emulate.
