Integra’s Chairman On Current Appeal Of National Appraisal Firms As Acquisition Targets

[PL1957]

http://www.costar.com/News/Article/...sal-Firms-as-Acquisition-Targets/187858?rpt=1

Interesting comments ...

 

[Michigan CG]

UGH!!!

".....You gave your appraisal journals to your best friend or your top MAI (Member Appraisal Institute), and then you turned the lights out and went home....."

 

[Mike Kennedy]

"Long term - I’m a bull. I’ve been doing this for 25+ years. I’m bullish on talented valuation professionals who understand their own value. I don’t believe the hype that computers and technology will eliminate our value in the market. My Dad always reminds me, 'to err is human - to really screw up, you need a computer.' ""

 

[Red Flint]

A worthwhile read.

Brokerage margin compression, did not know that.

Am now going to enlarge the business plan to include 'valuation bolt-ons' as soon as I figure out what that entails.

 

[Gobears81]

I agree with what he said about closing shop-unless the business is being purchased by another appraiser currently employed by said firm, I have seen first hand that profitable independent appraisal companies do not have a market.

I think 2017 is going to represent a huge professional shake-out
I wonder what he meant by that

 

[PL1957]

I agree with what he said about closing shop-unless the business is being purchased by another appraiser currently employed by said firm, I have seen first hand that profitable independent appraisal companies do not have a market.

Speaking as someone who has been involved in both buying and selling appraisal firms, Two comments on this - first, many smaller firms are profitable only to extent that they provide a comfortable living for the principals. Once that component is backed out, there's not a lot left to provide for an adequate return on investment for the acquiring party. Second, there absolutely nothing wrong with that. If the firm is set up in such a way where the founders can get a positive cash flow while reducing their involvement, more power to them.

I think 2017 is going to represent a huge professional shake-out

I wonder what he meant by that

Many major markets are seeing an influx of "national" firms. Depending on where you draw the line, Chicago now has anywhere between 7 and 10 such firms. Several are in staff-up modes, making promises to appraisers which are not sustainable in the long run. Being desperate to generate any kind of revenue, they'll buy work with low fees until either a) their appraisers leave because they're not making what was promised, or b) their financial backers realize the returns aren't there and stop investing in the business, starting a downward spiral. We saw some of this 4-5 years ago, but unfortunately, some people weren't paying attention and are repeating the mistakes. A lot of appraisers will go for "greener grass" and will get burned.

 

[Michigan CG]

.................. Chicago now has anywhere between 7 and 10 such firms. 1. Several are in staff-up modes, making promises to appraisers which are not sustainable in the long run. 2 ........................ they'll buy work with low fees until either a) their appraisers leave because they're not making what was promised, ...............3...............A lot of appraisers will go for "greener grass" and will get burned.....4.....

1. Is there enough work for 7-10 national firms?

2. Do they try to hire local appraisers who have been in the area a long time to staff up or are they hiring trainees?

3. What would the national firms be promising their appraisers? The average residential appraiser nets about $60,000/year. The average person with a CG license makes $90,000 per year BUT that is deceiving as many people who have a CG don't do any commercial work; I know of some. Then there are people like me who do residential, commercial and farm work. The national firms are only doing commercial work, are they promising $100,000 for a normal work week? If I only did commercial work with my typical fees I could easily make $100,000 in less than 40 hours a week (but I would have to cover an area wider than I want or could).

4. Where will the appraisers go? Try to start their own companies?

 

[PL1957]

1. Is there enough work for 7-10 national firms?

2. Do they try to hire local appraisers who have been in the area a long time to staff up or are they hiring trainees?

3. What would the national firms be promising their appraisers? The average residential appraiser nets about $60,000/year. The average person with a CG license makes $90,000 per year BUT that is deceiving as many people who have a CG don't do any commercial work; I know of some. Then there are people like me who do residential, commercial and farm work. The national firms are only doing commercial work, are they promising $100,000 for a normal work week? If I only did commercial work with my typical fees I could easily make $100,000 in less than 40 hours a week (but I would have to cover an area wider than I want or could).

4. Where will the appraisers go? Try to start their own companies?

1. There is a finite amount of work out there. As more firms compete for the same work, fees will go down. National firms will begin moving into areas which used to be serviced by local guys, moving fees even lower for everyone.

2. Yes to both. They promise higher splits to experienced people and churn trainees. Neither one of those scenarios are sustainable.

3. I don't know any experienced appraiser with our firm who makes less than six figures.

4. Marginal appraisers will probably go back to selling used cars. Good appraisers will move to other, smaller firms, usually taking a hit to their income and their egos. The firms they originally came from will have replaced them.

The last time this happened, I lost 7 good appraisers to two separate firms. One came back to me inside of three months. One is still with the firm he went to. The other five are now with different firms. If they were honest about it, all would admit they would be financially better off if they had never left.

 

[Michigan CG]

1. There is a finite amount of work out there. As more firms compete for the same work, fees will go down. National firms will begin moving into areas which used to be serviced by local guys, moving fees even lower for everyone.

2. Yes to both. They promise higher splits to experienced people and churn trainees. Neither one of those scenarios are sustainable.

3. I don't know any experienced appraiser with our firm who makes less than six figures.

4. Marginal appraisers will probably go back to selling used cars. Good appraisers will move to other, smaller firms, usually taking a hit to their income and their egos. The firms they originally came from will have replaced them.

The last time this happened, I lost 7 good appraisers to two separate firms. One came back to me inside of three months. One is still with the firm he went to. The other five are now with different firms. If they were honest about it, all would admit they would be financially better off if they had never left.

Keeping the same numbers............

1. Do the national firms not see that they can only "staff up" so much until fees will go down or is it "everyone is staffing up so we have to"? Fees go down so you expand to Peoria or smaller towns?

2. Higher splits to experienced guys seems reasonable until fees drop and then it is not sustainable. Churning trainees just burns out trainees or do they see $100,000 in their future and keep hope? About a year ago (maybe 2) a guy called me needing comps in my rural area. He was a trainee and told me he was getting $750 for a report I know would take 40 hours for me to write as there were just no comps.

3. Six figures is a wide range. In my local area a 3,000 retail space appraisal can run about $2,500. The experience guy getting a 75% (???) split can't take those assignments, those would go to trainees?

4. To work for your company I doubt you have any marginal appraisers. I would assume the national firms (like yours) provides very good training. Even a marginal appraiser would have a lot more skills after 6 months in one of your offices and be marketable. I doubt you folks accept McKissock classes or classes from Bob's School of Appraising and Dog Handling.

 

[PL1957]

Keeping the same numbers............

1. Do the national firms not see that they can only "staff up" so much until fees will go down or is it "everyone is staffing up so we have to"? Fees go down so you expand to Peoria or smaller towns?

2. Higher splits to experienced guys seems reasonable until fees drop and then it is not sustainable. Churning trainees just burns out trainees or do they see $100,000 in their future and keep hope? About a year ago (maybe 2) a guy called me needing comps in my rural area. He was a trainee and told me he was getting $750 for a report I know would take 40 hours for me to write as there were just no comps.

3. Six figures is a wide range. In my local area a 3,000 retail space appraisal can run about $2,500. The experience guy getting a 75% (???) split can't take those assignments, those would go to trainees?

4. To work for your company I doubt you have any marginal appraisers. I would assume the national firms (like yours) provides very good training. Even a marginal appraiser would have a lot more skills after 6 months in one of your offices and be marketable. I doubt you folks accept McKissock classes or classes from Bob's School of Appraising and Dog Handling.

1. National firms are like sharks - if they don't keep moving forward, they sink to the bottom. My revenues have doubled over the last eight years. The expectation is that they will double again over the next eight years. Established firms aren't driving fees down - it's the new guys who have to provide clients with a reason to use them. They have to "buy" assignments to get their foot in the door, then they find out they can't bring the fees back up to reasonable levels.

2. A real firm that has employees, support staff, benefits, office space, etc. can't pay people more than the equivalent of 50% before benefits. If they pay more, it will come out of something else - either resources or returns to the company.

3. That's a fatal flaw in a lot of people's thinking. Low fee does not mean "simple". Using trainees for the low fee stuff will quickly erode a firms reputation and will lock them out of the "good" stuff.

4. Everyone has some marginal appraisers. You just have to try and minimize their impact. Some marginal guys used to be good and you hope they recover their mojo, others have the potential to become good with the right guidance.