At 1st Nosey/ Open letter to Fee Cutters

[Dan/Fla]

I emailed 2 clients to whom I have been doing a nice volume for the past few years, Though I have not raised my rates because they were good clients for all these years, and basically because they are not a pain in the butt. Now volume has dropped to almost nothing, except sometimes I get these calls ever so often when they stroke my ego and state they need their a better appraiser on this one. They confirm my fee and send me the order. But other wise my fax and email does not hear from them. OK for info I charge them $275. Yes I know that is low. But like I stated above I used to get 12-20 orders a month and they never bugged me for value, time or anything else, and yes the volume may up for it.

For a while the almost none existent business from them bothered me. So today I emailed them and asked a basic question “Did I make someone mad or was there a problem with quality of my work?”

Reply was no, work is superior, however it is a fee issue we have a number of appraisers in Florida working for much less the typical fee in Florida is $175, and with REO addendum $200 to $225. We only use our more season Appraisers (not sure I liked the Season word) when client request a certain or for us to use our best appraisers.

I am amazed I have had my own company 2001 and I have never done a 1004 for $175. I was doing drive by on the old 2055 for $175 back then. Yes I know we talk here and ***** hear about the appraisers undercutting but I have never understood why? What has happen in past couple of years for such a dramatic drop in fee. I understand a trainee getting out on his own think his boss used to pay him $120 when he charged $300. The new business owner now I get all of $175, great. So the newly certified is happy. How are these guys surviving at such a low price? Do these guys and gals, have any idea of what their cost are per Appraisal? Maybe I am weird but every year I have been in business I can tell you how many total (all types) assignments I have done. I know my total volume, Divide those numbers and know my average $ per assignment. I keep up with hours I work per week. So I can figure out my earning per hour before and after all cost. In March when I company taxes are due I know what my total cost was for the year which just ended.. Then I figure new numbers not including labor what my net cost and earnings per assignment is. Since I have these numbers already I lowered my earnings per assignment from $283.91 (2007 Actual) to the $175. Assuming they have no other lower paying assignments like Satisfactory of Completion etc. After expenses, I would have been making less than $10 hour. For that rate I would go out and get a job with Benefits and paid time off and Vacation time, and let someone else deal with the headaches.

Yes, my business down, from the last few years, yes. But am I thinking of lower my rates NO. My business went flat starting about June of last year and started to decline about September. Beginning in December, I knew I had to do something. I started developing new higher fee based clients. Though my business volume is down about 42% from last year my earnings per assignment has risen since the beginning of year is over $310. My bills are getting paid. I raised my average right at $40 per assignment thus lowered the impact each lost assignment actual cost me.

What I don understand is do these appraisers understand the cost of doing business at all? I am sure most of use who sure most of us know what our yearly cost to doing business with computer, internet, data, insurance, printing, my case alamode, disposables, phone, car and maintenance, and so on. Many of us divide that monthly/weekly. True with more assignments the less of the cost per assignment. I am not saying that the appraiser charging $175 is any less confident. But if for any reason he/she loses any volume at those low rates they will be in financial problems fast. I also believe since he is working on such a low margin that he could be easier pressured to the more unspeakable. Yes the appraiser accepting the $175 Take some of my business and that I can accept. Maybe one day I will learn that I took away if you had any full fee business, for this I can only hope. Because I know you truly do not want any assignments making over $200 please forward all your $325+ assignments my way and I will never miss my for $275 business. I do know that the 1 client I was doing the assignments for $275 were charging the bank $400. Which I thought was ****er that they were making $125 of me but knowing they are making $225 compared to the Appraisers $175 is funny. Want to bet on which one gets sued if and when there is a problem? Which one will the FREAB go after? Though it would be nice if Florida licensed all AMC, out of state brokers not just their companies.

Am I upset that some appraisers are charging fees so low it is hurting all of us? Yes. Am I upset that some of my clients care more about a bargain fees than what they say with their own words I do give the superior quality when they need it? Yes. Would I be more upset is my bills were not getting paid? Yes. But it is all to our marketing strategy, I would rather not get an assignment due someone is better qualified than me, than to just get the assignment because to hell with quality I am just going to under cut your price. I wonder if these appraisers truly believe with their low fee that benefiting the Borrower? Is the appraiser’s low fees going into the Borrower or client’s pocket? Have I ever lower prices to get business? Yes. I have 2 clients which I still have today that when I approached them. They wanted to know “How do we know we will get out money’s worth.” I did a deal which I put on the Invoice $100 off new client discount for 1st 3 orders, though even with the $100 off I still charged more than the $175..

As an independent business people we can set our own rates if you believe that your service and quality of your work is worth under $200 for a full URAR, great. Please never raise your rates to any clients. I believe I am a professional that is why I charge more than $300. Some will say $175 is all the market will pay for URAR. I say call 10 different offices in you city for a price quote if the average or most companies in your area say $175 then you right. But if like this market it is between $325 to $350 then that is what the market supports. Do not believe me call 10 offices to get the going rate.

The volume I lost to whomever is doing them for $175 which I did plenty 9 months for $275. Enjoy because I have been constantly replacing those orders with higher fee client. The lost was less than 30% of my total business do though it hurt I was able to make it up. Something I learn from a friend many years ago never have 1 client over 30% of you business and preferable never to have 1 client over 25%, so a lost does not put you out of business.

 

[Jungle Boy]

Dan

Good luck to all of us.

Diversification is the key to staying alive in the short run.

Hopefully the long run will see these short sited people long gone, and we can get back to business as usual.

 

[Couch Potato]

What do you need out of your job?

I would not count on them being long gone. If I did 6 appraisal a week at $175 an appraisal my income after deducting fixed expenses of just under $200 a month, would be just over $50,000. For a single person in good health, or a married person with a spouse that also has an income that would be quite profitable. It is a question of how hard will you work for how much money. There are plenty of people for whom that net income of about $35,000 is enough. (Just under $20 an hour at 6 hours per appraisal.) I'm not one of them. I would much rather do less work at a higher hourly rate.

Anyone not turning a profit for the month on as few as two orders has expenses that are too high. That is the reality of the current market. I make money with one order a month, and make good money with two or more orders a month. There are appraisers that are competitive in the market, and those that are not. If one wants high volume, one must have low price.

 

[Dale Smalley]

Sometimes its better to park the plane. On the bright side let them keep skippy busy and broke.

 

[Judy Whitehead (Florida)]

The AMC's that pay so little are finding appraisers to work for $175-$240 for a 1004. I told everone in my office that if they wanted to, I would sign up for this fee, take a smaller cut myself, and at least they could stay busier. It costs me $1,000 per month to keep the doors open before I even pay myself or anyone else. I have 2 state certs and 1 trainee that works for me.

In unison they all said they would rather we pursue getting business that pays a decent fee rather than work for the lower fees. When we did work for those AMC's (at full rates) they were the biggest pain in the patootie of any client, demanding hours of additional information that results in additional work, and in general it simply was not worth it. We all decided that we would rather clean toilets or something rather than work under those conditions. I predict that the appraisers who are doing that work will all drop dead of a heart attack or stroke due to the pressure of working that many hours for next to nothing.

 

[Mztk1]

My Software is about $1,500 a year.

My MLS is about $1,500 a year which includes lockbox key.

My gas is about $5,600 a year.

My phone and fax are $2,500 a month, which the bulk of that in my 150/month cell phone expense.

I buy a new computer about every 2 years so that is $600 per year.

Paper is $39.95 a case and about a case a month or $479.40 a year.

Toner is $39.95 and I go through two a month or $958.80 a year.

Health insurance is $500/month.

I never advertise and don't even print business cards.

That's $19,138 per year.

Let's settle on 10 files a week as full time. At $175 a file that is $1,750 per week, and if we are like most Americans we take 4 weeks off a year. That's a gross income of $84,000. From that I less my expenses and I am left $64,862.

If I own my own corporation there are tax benefits. For instance, I pay myself $25,000 a year and then I collect the rest of my income on stock dividends. At $25,000 my tax rate is 15%, plust 15% towards SS. The dividend rate is 15% too, but no social security. In addition, I get to write off 35,000 miles. I don't know what the rate is so I'll pretend it is $0.42/miles. My taxable income then is $55,762 being self employed, or $8,364. If I made the same amount but was employed, the income tax would be $9,750. Also, my 15% SS on $25,000 costs me $3,750, but on the but at 7.5% of $65,000 it is $4,875. On $65,000 a year I am netting $52,886 making $175 per report at 10 reports per week; or I can take a corporate job that pays the same amount, work 40 hrs a week and commute 5 hours a week, and take home $50,375. So working at $175/report with my expenses is equivalent to having a $68,240 salaried position. Tell me how many people can go to school for two years, work two years getting their feet wet, and make that much money?

My neice just graduated with a masters degree for teaching. She's been in school for 5 years, did student teaching for a year, and she is starting at around $45,000 a year. She might be making $68,000 a year if she stays in her job 10 years. The $68K doesn't sound so bad from that perspective, IMO.

 

[Couch Potato]

My Software is about $1,500 a year.

My MLS is about $1,500 a year which includes lockbox key.

My gas is about $5,600 a year.

My phone and fax are $2,500 a month, which the bulk of that in my 150/month cell phone expense.

I buy a new computer about every 2 years so that is $600 per year.

Paper is $39.95 a case and about a case a month or $479.40 a year.

Toner is $39.95 and I go through two a month or $958.80 a year.

Health insurance is $500/month.

I never advertise and don't even print business cards.

That's $19,138 per year.

Your cost structure is simply not competitive in today's market. A healthy individual can buy personal health insurance for just under $200 a month. I would further argue this is a living expense, not a business expense. The only reason for buying it through a business is for personal income tax advantages. It in no way affects the operation of the typical appraisal business.

I spend less than $50 a year on paper and printer supplies. There is little need to print anything. Electronic storage is easy, reliable and cheap. In any case it is a variable cost related to the amount of work done.

A new computer every 5 to 6 years is a more realistic policy. The latest and greatest is nice, but hardly necessary for an appraisal business.

You are paying 3 to 4 times too much for phone and fax service (assuming you meant $2,500 a year.) $150 a month for cell phone service? Unlimited voice plans are only $100 a month. Personally I pay less than $10 a month for my prepaid cell phone. Email and land lines are far more reasonably priced.

$466.67 a month for gasoline indicates either your car or your service area is likely too large, maybe both. An appraisal shouldn't require more than 2 gallons of fuel in an urban/suburban market. (That's well under $200 a month.) What ever the fuel cost per job, it is a variable cost only incurred when there is work to do.

$1,500 a year for MLS is substantially higher than I have to pay, but not as outrageous as some have to pay.

$1,500 a year for software is about twice as much as is reasonable.

Just my opinion. Only you know what it takes to run your business, but if your expenses are more than twice the expenses of your competition, I don't see how you will survive in the long run. I would say 6 appraisals a week is full-time. 10 a week is simply not sustainable when the jobs are done properly.

The average teacher salary where I live is just over $60K.

 

[Mike Phillips]

Friends -

I hate to see these discussions about low fees. The problem, quite simply, is that we have a huge oversupply of appraisers. Nothing more, nothing less. There really is no other problem. AMCs have gotten away with cramming the low fees down our throats because they can.

Several years ago, when I joined the forum I noticed very few appraisers would acknowledge they were working for AMCs. The forum veterans insisted they were above such nonsense. Today, not only do veteran appraisers readily acknowledge they work for AMCs, you have appraisers like Tater speaking the unspeakable; suggesting that one can be profitable doing work at $175 for a 1004. He's right.

Let's stop blaming appraisers for accepting low fees. Let's blame those who manufactured so many Certified Residential appraisers - supervisors who many argue failed to do their job of training which has resulted in a very poorly trained, ethically challenged crop or appraisers. There is not much talk about who created the problem - who "birthed them babies anyway?"

There is good news on the horizon. The number of incoming FL Registered Trainees dropped to 15 for the month of 5/08; only 6 are Active. This is way down from 200+/- in 1/07. The new AQB requirements will kick-in sooner or later, further limiting the supply of incoming Trainees (when they hear the wake-up call), and, more importantly, Certified Residentials. Also note: Florida is one of the very few states that has stopped issuing the Licensed level category license. Unfortunately there is no quick fix in the short-run. Yeah, some of you might have to get off your ...... and tape some houses. And there will be less "instructors" teaching AB1/AB2.

The time to make your money was over as of about 1/2007. Now is the time to survive in "maintenance mode." In the future, think twice about NOT training your competition - like the AMCs (see paragraph 1), because you can.

Happy weekend
MP

 

[Jerry Still]

Folks,

Mr Phillips really nailed it. Too damned many appraisers and very few orders. Over supply/Low demand market, plain and simple. It was an over supply back in 2007, now its worse....its a cluster puck.

Like starving Paraná in a pond when a $175 turd bird falls in. The Paraná all race to the bottom to get it. The bottom is slowly (another one+/three years) approaching.

Mikes right...I trained three people to be licensed in 1991...they each trained a few...and those trained a few more...on and on. I have met the enemy in the mirror.

Kind Regards,

JS