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More work Less Money

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Terrel L. Shields

Elite Member
Gold Supporting Member
Joined
May 2, 2002
Professional Status
Certified General Appraiser
State
Arkansas
It appears from my books that we will do in excess of a 25% increase in number of assignments over 2001. Our gross take will exceed 30% increase because a higher percentage has been farm this year, not because of any major increase in fees. In fact, fees for SFR are the same as 1998. I will increase the fee in 2003.

But my bottom line! Geez...it is substantially down from last year. Data services and fees have increased by at least 50%. Phone expenses up by at least 1/3rd. My cont. ed. costs were up. Gas and mileage up. But I have made no major purchases. I have concluded the boom syndrome is at play. When things boom, we spend more freely in the vain hope that this or that will speed things up so we are not behind so much. I have made numerous purchases of books that are specific to a particular class of property...Carwash Appraisal Manual comes to mind. Never mind I have done only 2 carwashes in 3 years. RV appraisal manual (never have done one of those.) In the next 30 days I am going to try and decide which service or whatever is good and which are marginal...can I do without that deed list? Or the high end courthouse record service? Do I really need 2 commercial cost books? Can the cheapest do the trick?

My philosophy has always been I work to eat not visa versa, but I am doing something wrong this year.

Ter
 

Steve Owen

Elite Member
Joined
Jan 16, 2002
Professional Status
Certified General Appraiser
State
Missouri
Terrel, I too plan to increase fees in 2003. I have many times posted concerning the problem you have pointed out, and I have usually been beaten-up by other persons on this forum who don't understand the basic economics involved.

Appraisers across the country have basically bought a pig in a poke with all the e-mailing of appraisals. Because it seems easier and quicker than printing out, they have forgotten to look at the bottom line. New expenses I have now that I didn't have five years ago (most of them, I didn't have two years ago - a few, I have still managed to avoid) include: extra phone lines, more expensive software with frequent upgrades, mapping and flood mapping expense, cell phone expense, internet service, web hosting, web advertising, computer and digital imaging hardware expense, the list goes on, and I'm sure I've left several things out.

Expenses I've managed to reduce include, film and photo development, number of miles driven (slightly, which has been off set by more expensive cost per mile), paper, and copying cost.

Not only does the new way bring on new costs, but it requires a more intense product effort. For example, ten years ago, most appraisers put their own opinion of market conditions on the first page of the URAR. Many clients now require specific statistics because they know that such information is now available. I'm not certain of the difference, but I suspect that the product I am producing today eats the time saved from having better technology and then some.

Now, here's the clincher: Most of the new costs are fixed costs! I have to pay the same amount per month for internet and cell phone whether I am doing a lot of appraisals or just a few. Most of the costs I've managed to reduce were variable costs - they automatically are less when I do less work. Watch out, this is very similar to the economic squeeze farmers find themselves in - and unlike the farmers, there are no government subsidy programs for appraisers.

I am not saying that you should not embrace new technology. (Most of my detractors will take this little diatribe just that way.) What I am saying is that you should pay careful attention to fixed costs and their effect on the bottom line. You should charge extra for e-mail delivery because that is what the market wants and they should be willing to pay the extra costs associated with it. To be working with economics on a daily basis, it seems to me like a lot of appraisers have precious little understanding of it when it comes to their own practice and, of course, that affects us all because we are in a situation much like pure competition.
 

Ross (CO)

Senior Member
Joined
Jan 17, 2002
Professional Status
Certified Residential Appraiser
State
Colorado
More work...less money. Appraise within 10 miles of home.....travel more than an hour 1-way to go to another county. All data on-line.....go to distant assessor offices, court houses or realty agent offices. Hardcopy mail....e-mail attached file. I was not in this business when rolls of film were dropped off and pictures picked up daily, or when form pages were fed through the rollers of the typewriter, or when the only way to send a report was by US mail. Clearly we have conveniences and technology helping make the tasks of our process easier and faster.....but by no means does that automatically equate to solid justification to do our work "cheaper". It has been said too often that basic fees for those standard reports we might do are the SAME as they were 10 years ago. That is absolutely NOT so for the mechanic who fixes your car, or the plumber who replaces the seal under the toilet or the service tech who gets your furnace up and working again at 11:30pm when it's -10 outside and the wind is howling !

Our clients will stop at no efforts to always play us against our fellow brothers and sisters in this line of work.....as in, well so-and-so will do it cheaper. To which I could only answer...let so-and-so have the order, then. We have many fixed costs, regular monthly bills and clearly the occasional "new" stuff we need to get on occasion, not to mention license renewals, require education, E & O, car expenses, MLS access, software upgrades, cameras....what did I miss ? While we are always told that collective setting of fees is collusion, or inappropriate, or not-to-be-discussed....we all should be thinking of smartly raising fees. I expect to raise mine by a "1/4 to 1/2 of a century", especially for the reports most-demanded, most-requested and most often worked on. Demand by the client tells us why to do so. Those phone call requests for "rush" will come at a premium price....and client pre-pay and h/o c.o.d. will be required. If they can not wait 2 or 3 or 4 weeks for report completion, then fine, ...and it will be $ zzz. Compared to the commissions earned by loan brokers at the closing table, and the commission checks earned by Realtors at the closing table..we are really on the short end of the compensation scale.

When you get that rare comment from a client that they really like your turn-time and you realize that the recent reports have not garnered any phone calls for added comments, or other data, or the dreaded "re-consideration" of your value, then perhaps they are being served the way they want ! I was told by an AMC recently, when discussing how I had gotten more secondary-coverage area assignments than local primary area assignments lately...."if you feel you need more money on some of those, just ask"...I nearly fell out of my chair. But, I got the message. They DO have the "extra" to pay us, so do not for a minute think that the direction we need to go with fees is DOWN. It's just the opposite. Excessive increases would be stupid. Fair and reasonable increases would be prudent. Just about the only thing that may be showing a decrease in market prices today, ironically, may be the price of houses ! Remember, it is not appropriate to charge a fee commensurate with the direction of value trend of the property we are appraising !

Wishing all a prosperous, reduced-hassle and professionally satisfying New Year !
 

Mike Simpson

Senior Member
Joined
Jan 30, 2002
I'm raisin rates as well.

While Greenspam & the Fed are sayin no inflation, my personal index is through the roof!

-Mike
 

Restrain

Elite Member
Joined
Jan 22, 2002
Professional Status
Certified General Appraiser
State
Florida
I'm charging more for distance appraisals, reducing areas served. Still busier than a one-armed wallpaper hanger. Planning to market to attorneys, etc to increase fees, reduce dependence on SF appraisals.

I have invested in faster computers this year (retired the old 266 clunkers) and have increased productivity (not waiting on downloads), faster cameras, etc.

However, the bottom line is that with my current client mix, I am maxed out on Gross, with Net declining due to costs. Gotta get better clients.

Roger
 

Larry Lyke

Senior Member
Joined
Feb 2, 2002
Geez, I find it axiomatic that you guys are saying your bottom line is suffering because you are upgrading equipment -- yet you're too busy to count the money. Nevertheless, you know the bottom line is trending down.

I find the new equipment pays for itself, otherwise I wouldn't have bought it.

Easier work environment, less time at the copying machine and collating, EDI, almost no color printing, quicker turnarounds. All this saved time can be incorporated into an additional appraisal per week.

After the upgrade is paid for, the new cash flow goes into your pocket.

Don't forget to keep your fees growing.

Instead of raising fees $25-$50 all at once because you've neglected them in the past, raise them $10-$15 above the competition and watch them to keep them there. That'll quell the resistence to your "higher" fees.

It even makes you look a big progressive. May the gods forbid! That an appraiser would see himself as set apart from the herd.

Therefore, do it just because it'll feel so-o-o good. You're worth it.

Well,... or maybe not?
 

Verne Hebert

Senior Member
Joined
Feb 25, 2002
Professional Status
Certified General Appraiser
State
Montana
Terrel-

You have generated a few threads of late explicitly discussing your ongoing thinking about fees. I thought the thread about everyones "perception" of overhead percentages was quite enlightenly.

I too have posted threads on the issue.

Having been educated in Construction Management, I have blesses with the opportunity of taking more accounting, and even more enlightening, more cost accounting I care to recollect.

What is worthy of recollection here, is the great number of studies I did on overhead mix. You are quite unique in looking at this real business issue.

I would suspect few appraisers, like nearly all small contractors, are truly unaware of their overhead percentage based on a given sales volume.

And the problem is the same, we (those of us who run a business) have to compete against those that truly don't know their costs (just like small contractors).

I am concerned that in the earlier posts their are no explicit references to insurance (car insurance, health insurance, life insurance, E & O, office equipment and liability insurance) God knows these are going up 12 % to 20 %.

I enjoy your posts--"keep the dog huntin'"
 

TC

Elite Member
Gold Supporting Member
Joined
Jan 31, 2002
Professional Status
Certified Residential Appraiser
State
Pennsylvania
I'll be raising fees only slightly next year, mainly on the 2055's and construction inspections. I had 2 clients jokingly state that my fees should be lower now that they have to pay for the ink and paper to print out the reports. My expenses have really gone down this year due in large part to EDI. No postage, no fed-ex, and no driving to drop off appraisals in person. My MLS decreased this year and since they are now on the net and not a dial-up, I was able to drop a dedicated phone line. I realize the equipment we use is expensive, but hiring a secy to use a IBM selectric is not what I want to go back to. I think the cost of overhead today vs the 80's or 90's has decreased on a per appraisal basis. The fees, however, have not increased at the same rate. Just my 2 cents.
TC
 
Joined
Jan 16, 2002
Professional Status
Certified General Appraiser
State
Montana
Ter:

To make more money in 2003, a road map is in order:



For most appraisal firms, the calendar year is also the financial year. This is according to IRS fiat with exceptions only granted for some compelling reason. December, then, is a good time for appraisers to take stock of the financial side of the business and make plans for the New Year. Although appraisers have advanced math and analytical skills, most of them, due to the crush of deadlines, give short shrift to the accounting side of business. However, with good planning and a consistently administered system in place, appraisers can reach better decisions regarding both the viability and profitability of the appraisal enterprise. A worthy goal then, is to step up from basic bookkeeping to an accounting system that will insure greater profitability in 2003 and beyond.

Bookkeeping refers to the task of recording the amount, date and source of all appraisal business revenues and expenses. It is the starting point of the accounting process for only with accurate bookkeeping, can meaningful accounting be done. Most appraisal offices employ various methods of bookkeeping and records maintenance but few develop a system that goes beyond recording the basics of business transactions. The key to good appraisal office administration is having a good accounting system. Accounting is a general term that refers to the overall process of tracking appraisal business income and expenses, and then using these numbers in various calculations and formulas to answer specific questions about the financial and tax status of the business.

A starting point for analyzing an appraisal firm’s accounting needs is to review the list of questions the IRS uses when looking at the appraisal firm. The list consists of the industry-specific Audit Technique Guides (ATG’s) the Internal Revenue Service (IRS) developed for its Market Segment Specialization Program (MSSP). Appraisal firm owners can learn useful information from the ATG for their type of business:

· Overview about typical business practices for comparative purposes
· Typical audit-identified errors to identify common trouble spots
· IRS specific battle plan for the business group.

Each ATG is available in complete detail and can be downloaded using Adobe Acrobat Reader, provided via a free download form the IRS Website. For print copies, there is a small charge. The closest ATG for appraisal firms is “Business Consultants.” This 44-page document is a useful guide to determine those items within the accounting system that are of greater interest to the IRS. While focusing heavily on the “Independent Contractor vs. Employee” issues, other information includes:

· Expected internal control features and check lists
· Potential issues such as travel expenses, meals and entertainment; personal service corporation reporting requirements; accounting methods test and reimbursed expenses
· Glossary of terms
· Interview questions
· Tests of reporting consistency
Another source of information is the SBA Success Series Volume 1. Two articles deserve mention. These are “Are You Making a Profit?” and “Winning Ideas for Small Business Success.”

Operating an appraisal business requires dedication and planning, not the least of which is putting in place an accounting system that fits the business. For most appraisal firms, the tax year is the calendar year. The tax year is important because the IRS wants to know the business income and expenditure during that specific twelve-month period designated as the taxable year. To provide that information, businesses must provide complete and auditable accounting records. Accounting records are based on individual transactions, which consist of three components: (1) a contract, (2) delivery of services, and (3) payment. Because these three components may not occur at the same time, every business has to decide whether the accounts will be maintained with one of the two following methods.

· Cash method -- the transaction (income or expense) is reported the year payment is made or received.
· Accrual method -- the transaction is reported when the goods or services are delivered.

Most sole proprietorships and some partnerships operate under the cash method. Larger businesses more typically use the accrual method. The exception to the above is depreciation. Depreciation reduces taxable income by deducting a portion of the cost of equipment purchased for business purposes, during the deemed life of the property. Federal laws define the specific circumstances under which depreciation can be used.

Clearly, even basic accounting principles are risky for the appraisal firm owner who tries to set up books without the counsel of a qualified accountant and/or attorney. An investment in professional expertise and advice will insure that accounting methods meet federal legal requirements, as well as providing useful data for business operation and planning. After securing adequate professional counsel, computer software may be considered to help maintain daily, routine account books. An accountant, however, is recommended for the preparation of formal organized and comprehensive financial statements and tax returns.

The traditional means of accounting is using manual ledgers. These are sheets of paper or computer spreadsheets on which transactions from four categories of accounts-assets, liabilities, income and expenses are recorded. Some of these flow up from sub ledgers. A computerized accounting system works the same way, except the ledgers and sub ledgers are computer files instead of sheets of papers or entries in a separate spreadsheet. Entries are posted to each section and summarized, and then the summary is posted to the general ledger, the overall summary area of the accounting system. From the general ledger, many reports may be compiled, the most important of which is the income statement.

An income statement, otherwise known as a profit and loss statement, is a summary of a company's profit or loss during any one given period of time, such as a month, three months, or one year. The income statement records all revenues for business during this given period, as well as the operating expenses for the business.

Owners of appraisal firms may use an income statement to track revenues and expenses so they can determine the operating performance of the business over a period of time. Owners use the statements to find out what areas of their business are over budget or under budget. Specific items that are causing unexpected expenditures can be pinpointed, such as phone, fax, mail, or supply expenses. Appraisal offices, for example, have high expenditures for ink cartridges, toners and other items related to the printing and copying of appraisal reports. Individually the cost of cartridges may be small but over time, expenses in this area may warrant an analysis of the equipment costs in relation to the upkeep costs. For these small expenditures, it might be well to consider a line item to focus on these costs. The same is true for telephone expenses. Separating cell phone costs, business lines expense, Internet line expense and telephone directory advertising will allow a complete analysis of these expenditures and insure that each one of these categories is given proper attention.

Appraisers live in a society of change and choices. While this is good in some ways, too much change isn’t always good. With so many accounting software packages on the market that promise to help you improve your business, selecting one can be a daunting task. As with so much in the technology of appraising, it is important to focus on what is needed out of the technology before spending good money into it. When adopting a new technology system, appraisers constantly see that both software and hardware are linked. Before making the decision to purchase accounting software, if your hardware is three or more years old, you may have to upgrade your hardware in order to have enough memory, speed and storage to run the new software.

The next step of selecting a system is to define the problems you expect the system to solve. Does the firm need a better way to control cash flow? Could billing be improved? What kind of reporting features are needed? Do you have specific expenditures that need closer attention? Once you have needs list, prioritize it. No solution will be perfect, so decide on what you must have versus what you would really like to have.

Once priorities are set, investigate systems that meet immediate needs and will be flexible enough to grow into other capabilities. Your new system should allow for things like a report writer and some level of customization. Choosing accounting software for the appraisal firm is ultimately a very business specific decision. Prior to settling on one program, you should also talk to a computer expert or consultant about your specific business needs, the business path for growth and your budget.

Currently there are four programs in the forefront of business accounting. They are Peachtree Complete, QuickBooks, MYOB and Net Ledger. For a review of these programs, a link is listed at the end of this article. All four of theses programs have powerful features and some have Internet bill paying capabilities. For an appraisal business, QuickBooks seems to have the edge in features attuned to the accounting of a service business. In a review of QuickBooks Pro 2001, CNET Reviewer Kathy Yakal says “QuickBooks is now an excellent choice for a sole proprietor or a small business that needs an easy to use program.”

Whether upgrading the reporting capability of an existing system or getting your toe in the water by using a computerized system, the month of December marks an excellent time to evaluate and plan for the New Year. By seriously considering the capabilities of your present system, moving up from bookkeeping to full-fledged accounting will pay great dividends and increase profitability in the New Year.


Links to Accounting Information


The Link to the SBA site for “Are you Making a Profit” and “Winning Ideas for Small Business Success” may be found at:
http://www.sbaonline.sba.gov/gopher/Busine...Success-Series/


A web resource for small and home business start-up information may be found at:
http://www.boconline.com/

Advice and assistance for operating a small business is found at:
http://www.isquare.com/

NFIB is the largest advocacy organization representing small and independent businesses in all 50 state capitals. There are some very outstanding articles on setting up an accounting system.
http://www.nfibonline.com/cgi-bin/NFIB.dll...gation/home.jsp

The ZDNet Small Business Advisor has great resources, tips and product info for the small business owner.
http://www.zdnet.com/smallbusiness/

For more information about the newest releases of Peachtree Complete, QuickBooks, MYOB and Net Ledger, go to:
http://www.cnet.com/software/0-3227836-8-4...-4563098-1.html
 

jtrotta

Senior Member
Joined
Jan 16, 2002
Terrl

think of all the business's around you and what they charge per hour;

check builder rates; plumber rates; electrician rates; and lastly look at what Bank fee's have increased over the past couple of years. Now look at what you do & the responsibility behind what you do, break it down as best you can into an hourly version and make the adjustment. From the past posts here, we all should be around $300 to $400 for a typical job; the harder the job the larger the Fee and it should be appropriate for the responsibility we take.

lastly, don't fergit to figure in a portion of cost fer the old automobla-as we cannot git from a to e wit out it. the costs we have saved (so-called) on photo's; paper and all the other junk, has been made up fer in Auto Costs - IE: looked at a Ford Explorer Sport 1.5 years ago, average cost -about $24,000 today the same vehicular spazo sport is around $29,900 - thats about a 30% increase, what caused dat - "O" % financing - not gitting the money in the end run of the loan, so they make it up in the front end of the purchase; doesn't stop there, cause like our taxes, once they have their hand in yer pocket, it ain't ta play pocket pool, they be wantin yer green fereva.

good luck in yer thoughts & plan

8)
 
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