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Entrepreneur, technician, and manager – the three conflicting roles of fee appraisers
Published 2-1-20 Where are we going? Change will be required. Most of us, of course, just “want to do appraisals.” But that doesn’t work for long term success as appraisal volume, clients, regulations, types of appraisals and appraisal requirements change over time.
You MUST focus on the business side of your appraisal business to survive and be successful.
How many appraisers do you know who say they are making less money per appraisal and are very dissatisfied? They have neglected the business side of their appraisal practices. They don’t have businesses, they have jobs.
When they’re swamped with work, they get very stressed out and don’t know how to prioritize their business tasks so that they can set aside time for family and friends, which is much more important than their businesses. When fees drop or business stops coming in, they don’t know what to do. They don’t know how to change, or they refuse to change.
Appraisers regularly call me who are dissatisfied with their businesses. When I ask them the simplest business questions, such as how diversified they are, how they select their clients, how much profit they are making, or how they plan for the inevitable slowdowns, I usually get a litany of complaints, i.e., AMCs, HVCC, FHA requiring certified appraisers, lender pressure, etc.
If you’ve never been a printer and decide to start or buy a printing business you will have to learn how to run the business. You will hire experienced press operators to run your equipment.
In contrast, when you start an appraisal business, you start the business because you know how to appraise. Most appraisers who become self-employed have little experience or training in business or marketing. Even if you do, you have difficulty taking time away from your personal appraisal production to run the business side.
Many fee appraisers have a fatal assumption – that “if you understand the technical work of a business, you understand the business that does that technical work.” This is the primary reason most small businesses fail or why the owner is very dissatisfied (including appraisal businesses).
One of the best small business books I have read is Michael Gerber’s “The E-Myth, Revisited, Why Most Small Businesses Don’t Work and What to Do About It.” The book is easy to understand, with practical examples, and will “hit home” for many appraisers. This article applies Gerber’s ideas to appraisal businesses.
The Entrepreneurial Myth
Many books and articles say that businesses in America are started by entrepreneurs who look for an opportunity and start a business. What is important is the opportunity, not the type of business. In fact, most businesses are started by technicians, who know how to appraise, do accounting, or bake pies. For various reasons, they decide to start their own businesses. Why did you start your appraisal business? You probably had an “entrepreneurial seizure.” You didn’t want to work on a fee split or didn’t like your boss. In my case, I had been a corporate real estate manager for five years and liked the corporate world less and less each year. I was tired of working for people who never seemed to listen to what I said, and was burned out on corporate politics. I wanted to be self-employed but had not considered doing fee appraisals.
I started appraising in the mid- 1970s, but went into corporate real estate management after getting my MBA in 1980. In 1985 my husband met a local appraiser at a gas station where they were both getting gas. He told my husband I could make more than I was making at the corporation ($50,000 per year in 1985) as a fee appraiser. I did a few assignments for him, and within a few months, quit my job, cashed in my stock options, and started my appraisal business. I had an entrepreneurial seizure. My husband was supportive, but a bit in shock.
The appraiser as Entrepreneur
The Entrepreneur is the dreamer, the visionary. The Entrepreneur loves change. The Entrepreneur lives in the future. The Entrepreneur makes us start our businesses and keeps us going when business is down. Appraisers who make it through the inevitable bust cycles of the appraisal business have a strong entrepreneurial side.
Entrepreneurial commercial appraisers made it through the downturn in the developer business in the early 1990s by shifting to RTC (foreclosure) work until it died off, then shifting to institutional investors when that market came back in the late 1990s. Their appraisals changed as the market shifted, switching from complete/self-contained to offering a menu of options.
Entrepreneurial residential appraisers shifted from documented and reviewed reports in the early 1990s to mortgage brokers in the mid-1990s when direct lenders outsourced loan origination, shifted to abbreviated reports such as drivebys. Automated underwriting increased. The survivors made a commitment to solicit non-lender work so they could make it through the inevitable down cycles of lender appraisals.
Non-entrepreneurial residential appraisers are hoping to retire before AVMs take over.
The appraiser as Manager
Our entrepreneurial side conflicts with our Manager side. The Entrepreneur wants to change. The Manager wants to keep everything in order and doesn’t like change.
The Entrepreneur lives in the future. The Manager lives in the past. But without the Manager, the Entrepreneur would have a chaotic business, constantly changing, with no systems in place to handle appraisal orders, track appraisal progress, return phone calls, send out amended appraisal reports, or even make sure the copier doesn’t run out of toner at a very critical time.
The Entrepreneur sees opportunity in changes in the appraisal market. The Manager sees problems. Without both personalities, an appraisal business cannot be successful.
The appraiser as Technician
Technicians just want to get the job done. The Technician’s motto is, “If you want it done right, do it yourself.” Thinking about the business gets in the way of getting the appraisals done.
The Entrepreneur keeps the Technician from maximum appraisal productivity by taking on too many assignments and clients. The Manager keeps trying to “organize” the office, taking time away from appraisal production.
For most appraisers, our Technician side is strongest, just like most other small businesses. The typical small business is 10 percent Entrepreneur, 20 percent Manager, and 70 percent Technician, according to the E-Myth Revisited.
The Entrepreneur lives in the future. The Manager lives in the past. The Technician lives in the present. Unfortunately, when the Technician is in charge, the Technician gets burned out trying to do it all.
All three personalities are necessary for a successful business.
Technicians have a job, not a business
When business is slow, Technicians don’t know what to do and bitterly
complain. They keep waiting for a “boss” to send them work.
When most businesses start, the Technician is in charge. Finally, you are working for a full fee, doing the appraisals you want for the clients you prefer. You and the business are the same. You work long hours, 7 days a week. That’s okay when you’re first starting your business. But three or four (or many more) years later, you’re still working those long hours. But, then you start to get burned out. Sometimes you miss deadlines. Sometimes you forget a client’s requirements. Sometimes there are avoidable mistakes in your appraisal reports.
Appraisers leave the business when they realize that after many years of working 7 days a week, it wasn’t worth it anymore. Even worse, they have few appraisals in slow times. They are Technicians and never developed their Manager and Entrepreneur sides.
If you can’t take a vacation or are a slave to your cell phone and think no one else can do it as good as you can, you don’t own a business, you have a job. That’s okay, but you pay a heavy price.
Moving beyond the Technician stage
Finally, you decide to get some help and look for someone to do what you don’t like to do. In my appraisal business, I realized in the third month that I did not like clerical work. If I had to do it, I would rather be an employee again. So I hired a clerical assistant. I still have one today. By the end of my first year in business, I realized I hated bookkeeping, even though I had a good finance background. I hired a parttime bookkeeper. Later, I hired appraisers.
Every business owner is different. Maybe you don’t like working with computers, so you hire a computer consultant. Or, you don’t like confirming sales, so you hire a researcher.
You have allowed your Manager side to develop. But you need to be careful that you are really managing, not just hiring someone and letting them do what they want.
Many appraisers complain that they hire a clerical assistant, but everything gets messed up. Or, the assistant doesn’t do what you want done, the way you want it done. Or, the trainee you hired doesn’t get the work done on time. That’s because you are a “Manager by Abdication.” You fail to supervise or keep track of what is going on in your office. You fail to give guidance or feedback to your employees. You fail to become an effective Manager.
At this point, many appraisers go back to being a Technician and doing it all themselves. And the cycle starts again. One day you wake up and realize you don’t want to go to work today, or any day. You don’t own a business, you own a job.
Entrepreneur vs. Technician
The Entrepreneur starts with the client, not with the business. The Entrepreneur understands that “without a clear picture of the client, no business can succeed.” The Technician only looks outward, asking “How can I sell my appraisals?”
To the Technician, the client is always a problem, who never seems to want what the Technician has, at a price the Technician wants to charge.
To the Entrepreneur, the client is an opportunity, with needs to be satisfied. To the Entrepreneur, the world is full of opportunity and is a continuing surprise. To the Technician, the clients seldom, if ever, appreciate him or his work, and won’t let him do what he wants to do.
The Technician looks at the product. The Entrepreneur looks at the client. The Technician starts with the present, looking forward to the future, hoping to keep it the same as the past. The Entrepreneur has a well-defined future, coming back to the present to match the future.
The Gerber answer – McDonald’s
Work on your business, not in your business, is the theme of the E-Myth, Revisited. What is important is that your business is not your life. Your business and your life are separate.
How can you go from an almost 100% Technician to using your Entrepreneur side? Yes, you do have one. Everyone who started a business has one.
In his E-Myth Revisited book, Michael Gerber suggests using a franchise model, where the business is very structured with written manuals. Although I was a bit put off at first, after re-reading this section of his book, there are lots of good ideas for appraisal firms.
In the franchise model, the goal is to have a vision and a model of your business so that everyone knows what they must do, and how to do it.
Will this work for your business? Maybe, maybe not. Is it applicable to a one-person business? Yes, if only to get you to think about your business and plan for the future. Every appraisal business will be able to get a few good ideas on how to hire and manage people, provide consistent service to clients, etc.
What if you just want to have a one-person business?
Many appraisal businesses have only one person in the business – the appraiser. Some successful appraisal businesses have run for years this way. This article explains the price you may have to pay for that decision and gives you some options. I don’t recommend working without any clerical assistance, particularly when business is strong, as you can pay someone to work for $15 to $20 per hour (depending on location), and you can do appraisals for $50 to $100 per hour. That’s how businesses make more money.
If you only have one person, you have to do all the work, manage the business, and plan for the future. Of course, it is possible to do it all. It’s your decision.
However, you may be better off and happier working for someone else. Not everyone is cut out to be self-employed. As you already know, there are many minuses. If you don’t want to be an Entrepreneur or Manager, maybe it’s time to consider becoming an employee. Experienced staff appraisers are hard to find.
Where to get more information
This article is based on an excellent book, “The E-Myth, Revisited, Why Most Small Businesses Don’t Work and What to Do About It,” written in 2004, by Michael E. Gerber, a small business consultant. The book is still in print. To get a copy go to the www.amazon. The book will definitely get you thinking about the business side of your appraisal practice.
No time to read? Buy the CDs and listen in your car.
The book will definitely get you thinking about the business side of your appraisal practice!