Starting an appraisal business

[KONA]

Fernando is right on !!

 

[IlliniApp]

Hello,
I am new to this forum, but not new to appraising. I have been a staff appraiser for all of my career, but now have the opportunity to go out on my own. I was hoping for suggestions/advice on getting set up such as choice of E&O, software, other services, etc. I have been doing the research, but I feel like I still don't know what I don't know, and want to get this established correctly from the start instead of having to possibly re-do things or otherwise get myself into trouble.
Thanks!

I will be facing similar issues in the next few years. I'm wondering, will you have any access to your past appraisals with your previous firm, did you have to purchase them? I mainly appraise agricultural properties and have many that are appraised a couple times in a few year span for estates and also some institutional investor work that are appraised every year.

 

[Tim The Enchanter]

When I went on my own self employed, I just set up my own MLS account, software, E&O.
Already had a computer and the other tools. Bank that laid us off set us up to get work from the back door, as it were.
Also searched for other clients. But, I had also worked in the fee world before, so the transition was not that hard.
Apart from getting enough work. Which is no problem lately. It's been 11+ years, and I never want another W2 job again. Ever.

 

[hoppybun333]

I don't want to give you wrong information so make sure you email SFREP to clarify, but I signed up for the basic monthly Silver package which actually comes with 2 different versions of software - Appraiseit Pro and Appraiseit Classic. If you like the Appraiseit Pro version you'll have to renew, but you can also keep using the Classic version for free which is what I have been doing. They probably won't tell you that because they are a for profit business. Classic works fine for me, but I have heard the Pro version is pretty awesome if you like all the bells and whistles. If you have more questions you can post them in the SFREP subforum here in the Technical - Hardware/software section.

I don't really remember why I decided to get an EIN. It's not really necessary but security was probably one of the reasons and I just like to keep things separate anyways. If you go with an EIN, make sure you fill out your W9s exactly the same way your info shows on the EIN approval, otherwise it may lead to problems.

As for the PO Box, I got that because I've moved a few times and getting my clients to change my address in their system was always a PIA.

Thanks for the tip on the EIN and the software. Are you a one-person shop and if so, did you set up your business as a sole proprietor/LLC/Corp?

 

[Fernando]

A new release from the Small Business Administration's Office of Advocacy finds that self-employed people are, on average, wealthier than their non-self-employed peers. Specifically, the median net worth for self-employed families was $380,000 in 2019; for the families of workers it was $90,000 - meaning that self-employed families had a net worth over four times larger than their peers in the workforce.

Just a thought you might consider.

 

[Fernando]

Thanks for the tip on the EIN and the software. Are you a one-person shop and if so, did you set up your business as a sole proprietor/LLC/Corp?

Unless you have a lot of assets, I would stick with sole proprietor since it's easier to fill out your tax forms.
Like always, refer to accountant if not sure.

 

[Russ Kitzberger]

Unless you have a lot of assets, I would stick with sole proprietor since it's easier to fill out your tax forms.
Like always, refer to accountant if not sure.

Are you a one-person shop and if so, did you set up your business as a sole proprietor/LLC/Corp?

I found the accounting easiest on the s corp. You have a completely different return for the corp, much easier to flow into your personal return.

Sole prop is a terrible type of entity; you do not benefit at all from a corp shield and still have all the required accounting as a disregarded entity LLC on your personal return. A sole prop is very difficult shut down without continued liability.

 

[Fernando]

When I went on my owned, for several years, I paid rent for an office in a business hub.
Even though I worked from home, I wanted a business office address. It was wasted money.
Since you don't meet clients and I worked alone, you don't need it.

 

[Michigan CG]

You need about $10,000. Set up an S-Corp. You need to subscribe to the local MLS (mine is close to $2,000/year). You need a good computer. I have a new computer every five years that is custom-built for about $2,000 and the guy that builds mine gets me a gaming computer for speed (I am not a gamer). I run three screens. You need two forms of backup; one being cloud.

I use alamode which is about $500 (I hate still using them since they are now Corelogic, but it is the best software in my opinion). I got rid of my website because I can't keep up with work but you would want one. Don't do a basic one, make it unique.

E and O will be about $800-$1,000 for $1M coverage.

Send yourself templates you use from your current work.

Set up spreadsheets for all of your expenses.

Hopefully, you are 3-5 years certified, or else you are going to have a hard time finding clients. You will most likely be stuck with AMC work for a while. Try to make your reports more thorough so you can find direct lenders.

Have a goal of many small volume clients instead of only a few main clients. I cringe when I see appraisers state that they have only 3-6 main clients. Lose one and it could be hard to make your house payment. I have 30+ clients and a lot of private work so if I lose one I don't miss them. Reduce your debt so you don't have to worry about that. I have a $60,000 truck but it is paid for and my mortgage is 1/10th of our family income and we have no other debt besides my wife's car but she also makes six figures.

Health care is a major concern. On this forum, many appraisers saw health care costs quadruple when Obamacare went into place (not being political, just stating facts). My wife's employer provides family medical coverage. A heart attack is $200,000 in medical bills. Do not neglect medical insurance.

Your budget should include retirement. You will be self-employed, you need the tax deduction so every year, with no excuses contribute to your retirement the maximum you can.

Plan ahead. This market will end and a bad market will emerge sometime. It might not be next year or the year after but it will happen sometime. 20% of appraisers went out of business from 2008-2011 and that could happen again.

I think designations might become important again, but I am biased as a designated appraiser. Appraisal waivers are huge, although declining. Once demand lessens the fees AMCs pay will decline but direct lenders tend not to do that. My lending work is all direct lenders with six AMC reports in the last three years.

Once you get up and going find an assistant to do data entry although labor is hard to find right now.

 

[Terrel L. Shields]

Set up an S corp and the EIN then will be for it, and you pay your personal self a salary. Keep it modest at first so you don't have to delay paying yourself. Software, camera, etc etc are all expenses borne by the Corp. But for your auto, bill the S corp for the mileage... So if I drive 800 miles in a month, the S corp pays the 800 x 56¢ to you - pass thru mileage. Keep a mileage book in the car. Get a credit card for the S corp. Or a debit card if flush. My CPA recommended not investing in any big equipment like a car or an office. Rent from yourself if you buy it. Rent at market rates though. The IRS expects rental property to be "market" rents.