This article was written in the early 2000s. Many of the ideas are relevant today. However, because many lenders don’t allow residential trainees to sign on their own, few trainees are hired now.
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To hire or not to hire – that is the question
Want more information on managing your appraisal business? To order our newsletter,This article was previously published in Appraisal Today (May, 1998) and was written by Ann O’Rourke. It is copyrighted. For reprint permission, Contact Us. Not a lot has changed since then and it gives a historical perspective on the topic.
Over and over we hear about a shortage of workers in this country. Companies have to turn down work because of the shortage. Now, in many areas, there is a shortage of experienced appraisers.
We can’t hire people off the street, as in the past, due to licensing requirements. Other industries can use temp agencies or hire foreign professionals, but we don’t have that option.
We all remember the “bad days” of not very long ago, when most appraisal firms were laying off appraisers. Should you even hire anyone, even if you’re way too busy?
Why is there an appraiser shortage in many areas?
The last big slump in the appraisal market was 1980-1985. Many left the field, including myself, to pursue more profitable employment. (In my case, I changed careers to corporate real estate management.) Most who quit the appraisal profession never returned. The only reason I returned was a strong desire to be self employed.
We now have another upswing after a severe appraisal recession. But there are few experienced appraisers available and trainees must be licensed. Many experienced appraisers gave up their licenses and have gone on to other fields. The immediate effect of licensing was to increase the number of appraisers, since the market was very strong. Prior to licensing, becoming an appraiser was not easy as there was no clear path, such as a college degree in appraising. Many trainees were hired by a lending institution or assessors office. Appraisal firms also hired trainees.
With licensing there was a clear path – get your trainee license and get hired. Whenever any trade or profession is first licensed there is always a substantial increase in new people.
The ever-cyclical appraisal business, driven by the lending market, is on the upswing. In the past, for residential, we could hire anyone, provide some training, and give the person a clipboard and a measuring tape. Now they must have at least trainee license before they can do appraisals.
For commercial appraisers, the market is even more difficult due to the long training time required. Many appraisers with 2 to 5 years of experience have left the field and moved on to other careers.
So what does this mean? Finding appraisers to hire is much more difficult than before, particularly for independent appraisal firms. Lenders can recruit from former lender appraisers who had to go into fee appraising, which they don’t like. They prefer a staff job.
In summary, the effect of licensing today is to greatly contribute to the appraiser shortage problem. Lenders wanted to have lots of appraisers and set the licensing requirements low at that time. Now requirements have increased. Also, appraising is no longer seen as a way to make lots of money.
When you should hire an appraiser
If you want to make more money and are tired of working very long hours and turning down work, the time to think about hiring another appraiser has come. You are willing to make the commitment to increase your marketing efforts to keep the work coming in. Or, get assistance from one of your appraisers in marketing.
You want to make more money. If you are a good manager, the more appraisers you have working for you, the more money you will make.
You must accept the possibility of laying off the person if the market gets really bad again.
You want to expand the expertise of your firm. For example, a residential appraiser experienced in high-end properties or REO appraisals, or a commercial appraiser with R&D/industrial experience.
You want to let your appraisers (and yourself) make more money by specializing in a geographic area or property type.
When you should not hire an appraiser
You don’t want to increase your marketing activities.
You want to give the person all your unprofitable assignments. They won’t stay long.
You don’t want to have to lay anyone off if business dries up.
You don’t trust anyone else to do appraisals for your firm.
You are convinced they will steal all your clients. (Even after you read the advice below.)
You prefer to work alone and don’t want to manage anyone else.
“Why should I hire someone who will steal my clients?”
I frequently hear this question from principals, both those who have never hired anyone and those who have hired many appraisers.
Most appraisers don’t worry about this issue, and accept it as a part of doing business. Traditionally, when you became designated (particularly the MAI designation) you started your own firm. Some even feel it is a compliment to their firm that they have trained so many owners of other appraisal firms.
But if you are concerned, here are some tips.
Almost all of the complaints are about trainees. There are some experienced appraisers who aren’t on any approved lists because they have relocated or their previous employer refused to get them added to any lists.
Some firms try non-compete agreements, which are dubious legally, but can intimidate some people from setting up competing businesses. They can be legally enforced for a period of time against other owners, such as partners, if properly set up.
When you think about it, would you go to work for someone else at a 40% to 60% fee split tomorrow? No. That’s because you are a business person as well as an appraiser.
You like to call the shots yourself, with no manager or supervisor.
You need to hire someone who is not like yourself, and has an employee mentality.
To keep an appraiser you need to offer them a reason to stay with you.
Some ways to keep appraisers are:
– A desk in your office with other people to talk with.
– Telecommuting that you set up to send appraisals to your office.
– Office equipment they couldn’t afford at first, such as a collating copier and digital cameras.
– Support staff to handle the clerical work.
– Benefits such as group health insurance and a retirement plan.
– You handle the client problems.
– You do the marketing.
You need to do careful recruitment and selection. Maybe a clerical person is ready to move up. You already know if the person is likely to start their own business. Hiring relatives works for many firms.
When interviewing, look for employee traits, such as staying at a job for a long time and wanting to work a 40 hour week.
Recruiting experienced appraisers
In a tough labor market, as many areas are today, recruiting experienced appraisers can be hard.
Using your appraiser/client network can really help. Find out which lenders are laying off people, or have given layoff notices. Look for lender appraisers who want a change.
“Stealing” from other firms is a bit touchy, but you can look around for dissatisfied associate appraisers who want to work a smaller geographic area, specialize in a certain property type, or get experience in new types of appraisals. Advertising in appraisal association’s chapter newsletters usually works better than newspaper advertising. You will have fewer under-qualified candidates than when advertising in the newspaper. However, membership has dropped in many associations, so it may be worthwhile to advertise in the newspaper to expand your pool of candidates.
Stress the benefits to experienced appraisers in your advertising. For example, “Tired of working for a low fee split with no benefits? The Robert Jones Group offers a competitive fee split plus health and pension benefits. “Ready to move on to more challenging appraisal assignments? Thompson Appraisal and Consulting offers a wide variety of large commercial appraisal assignments.”
What if you get little or no response to your ad? Time to do some networking, looking for appraisers who were laid off from a lender or who dropped out of appraising due to lack of work but who are now ready to come back.
A base salary (or a draw) plus commission is common in commercial appraisal firms. What about offering a full salary, for example, $40,000 to $50,000 per year? Many appraisers would prefer a salary, particularly if you are recruiting former or current institutional appraisers.
Consider giving a bonus to anyone in your firm who recruits an appraiser who gets hired. Often associate appraisers have better contacts than the principal. They know who is looking for a new position. The cost of a $1,000 to $2,000 bonus can easily be made up in a month’s worth of completed appraisal assignments by the new hire.
Selecting experienced appraisers
We all want high producers of good quality appraisals who are well trained and ready to hit the ground running. But those appraisers are very hard to find in a tight job market.
Make a list of your preferred requirements and see how candidates match up. For example:
– Type of experience
– Years of experience- Education
– Professional designations- Writing ability- Judgment
– Quality of work
– Production ability
Of course, you will be reviewing work samples. If a candidate is really hopeless, it usually shows up in their samples. But you also want to be sure the candidate has similar ethics and quality standards to yours, or can be retrained. Is your firm laid back or go-go-go? Select an appraiser who will fit into your business culture.
Should you hire a trainee?
Many appraisal firms hire trainees. Unfortunately, they are very costly to train and are a substantial liability risk to your company.
Before you hire a trainee, think long and hard about why you are hiring a trainee rather than an experienced appraiser.
Some reasons for hiring a trainee are:
– You have tried everything and can’t find a qualified experienced appraiser.
– You have had difficulties with experienced appraisers because they don’t do everything the way you do.
– One of your clerical workers wants to become an appraiser. These people are often an excellent choice, particularly since you know them well.
– You have a relative or friend who wants to become an appraiser.
– You feel it is “the right thing to do” to carry on the appraisal profession.
– You are willing to accept the increased liability in using an inexperienced appraiser.
Some reasons for not hiring a trainee:
– You want to give the trainee a day or so training and send the person out in the field. Not fair to you or the trainee and too much liability risk.
– You want cheap labor. Trainees are not cheap. They are very expensive due to today’s long training time.
– You want to hire an independent contractor. Trainees can never be independent contractors.
– You don’t want to spend months reviewing their work, getting them on lists, co-inspecting properties, etc.
– You don’t want any increased liability.
– You don’t want them to “steal your clients.” See above.
You make a substantial commitment when you hire a trainee, both in your lost income during training times, and the time required to get them approved and fully licensed.
Recruiting and selecting trainees
In contrast with recruiting experienced appraisers, candidates for trainee positions are usually easy to find, particularly if you are willing to hire them before they get their trainee licenses.
Trainee selection is much more difficult than for experienced appraisers. You don’t know if they will be able to appraise. Some people just don’t have the talent or ability to learn the skills.
For trainees, you will have to research their resumes and references to try to get an idea about their work ethic and ability to work independently. Test for basic math and English skills. Some computer experience is almost mandatory. Perfectionists don’t work well in a production-oriented appraisal firm, but may work well if you do litigation support.
Plan on having an initial trial period of employment. If the new hire can’t complete work on time or can’t work independently, they won’t work out as an appraiser. If they can’t handle uncertainty, they will have problems.
Some appraisal firms have had success hiring real estate agents, and some have not. Some real estate agents are “natural” appraisers who really analyze at sales to determine a listing price. Many just “wing it.” You have to be sure you hire the right agent. Many commercial real estate agents regularly use valuation techniques as their clients expect it, and may work out well as appraisers.
Employee or independent contractor?
For many appraisal firms hiring (or rehiring) their first appraiser, the independent contractor issue must be faced.
One of your greatest financial risk as a successful appraisal firm is failing an audit by the IRS. You will be liable for all the taxes your appraisers owed to the federal government, including social security and income taxes.
Many appraisers mistakenly believe that they can hire appraisers just like real estate companies hire agents, as independent contractors. Real estate firms have special exemptions from employee laws. Appraisers don’t, except possibly in a few states, but only for state taxes.
Payment on a fee split basis does not mean the appraiser is an independent contractor. Almost all employee appraisers are paid on a fee split basis at appraisal firms, except for trainees who are often paid on an hourly basis. Many appraiser employees don’t receive any benefits except those that are state and federally mandated, such as workers compensation and unemployment insurance. Check with your state.
If you’re hiring a trainee, there is only one legal choice. TRAINEES CAN NEVER BE INDEPENDENT CONTRACTORS because they must be supervised. Until they accumulate enough hours of experience and get their license or certification, to be safe, you should classify them as an employee.
Recruiting experienced appraisers as employees can be a problem, because of the lower fee split paid. You will have to explain that you are paying half their Social Security plus providing insurance.
Independent contractor appraisers are business persons. They are just like you. They can decline work, set their own hours, have their own business location, stationery, business cards, etc. Just like you can work 100% for a bank, they can work 100% for you. But do you work in your client’s office, use their phones, computers, data, etc.? No. If you provide these resources, be sure to keep very close track and charge back for everything.
If you are planning on hiring an appraiser as an independent contractor, purchase one or both of the resources at the end of this article. The time to make the decision is when you hire your first appraiser. Changing later can be very difficult.
Determining a fair fee split is important when hiring someone. Lowering the fee split later can be very difficult, except when times are really bad and they have no where else to go.
The first step is to find out what other firms are paying. The best way is to ask associate appraisers at other firms. I have never been turned down when taking a fee split survey by asking them. Owners are more reluctant to give you information.
Be sure you are comparing “like to like” by asking if the person is an employee or independent contractor, receives any benefits such as sick leave, vacation or education reimbursement, and how much clerical assistance is provided.
The greatest factor is independent contractor vs. employee. An appraiser who is an independent contractor pays all their social security taxes and insurance premiums. If the appraiser is an employee, you pay half their social security taxes plus other benefits such as unemployment and workers comp. The cost is typically at least 10% to the hiring firm. In other words, pay an independent contractor 50%, and pay an employee 40%.
Listed below are many other factors to consider:
– Availability of appraisers.
– Reputation of your firm.
– Clerical support. The more support you supply, the lower the fee.
– Office equipment available, such as digital cameras.
– Experience. The more experience, the less supervision.
– Designations. Which ones are valuable in your market?
– Marketing. Will the appraiser do any marketing?
– Timing of commission payment. You can offer a higher split if they are willing to wait until you are paid.
– Experience you can provide. For example, a residential appraiser wanting to be trained in commercial appraising. Or an appraiser wanting litigation training. – Production. Your high producers are the most profitable for your firm. You should offer an incentive.
– Benefits. If you offer vacation, sick leave, health insurance, 401k, etc. be sure to factor that into your fee split. For example, 2 weeks vacation time is 2/52nds of a typical yearly billing, or 3.8%.
Where to get more information
This article is only a very brief overview of the nuts and bolts of interviewing and researching resumes. Many books and articles have been written on these topics. Check at your local library or one of the links below to Amazon.com.
My favorite author is Robert Half, who has written several books on the topic.
The only useful book I know of for independent contractors is The Independent Contractor/Appraiser Defense Guide. Although the method used in the book is not applicable to all firms, it includes a sample contract and discussion of the issues. The book is available for $99 from Atom Levi, MAI, SRA, ASA. Call 800-835-0640 to order.