Transitioning to commercial from SFR work

[DeseretJohn]

I posted this last week in the "newbies" forum and did get some feedback, but thought I'd try it again directed specifically to the commercial segment.

I'm still trying to get my feet wet in this profession but I am already trying to figure out how to better secure my future. The run-of-the-mill single family residential appraisal seems to make up the bulk of appraisal work, but this same sector is the one that seems most at risk of being automated away into oblivion. After speaking to some local appraisal veterans, I'm hearing that commercial work tends to be more consistantly available (less cyclical) and is less vulnerable to being stolen away by a software program. Is there a logical/typical career path to transition from residential to commercial work? Or along the same lines, are there some general niches that have a likely future I.E. estate valuation, divorce, litigation, etc. I'm near Salt Lake City (Salt Lake/Davis county area) but logistically close enough to tap into rural and agricultural areas to the north, if need be, if that helps in your guidance.

I was hoping to gradually transition from my current profession into the appraisal field over the next year to maintain some predictable income, but a possible layoff later this year may put all my plans on the fast track. I believe in myself and strongly believe that human appraisals won't ever go away, but I want to be careful not to start down the wrong path and have to re-group a year or two from now.

I'm also wondering if working for a county/state assessor is the way to go. On the plus side: a 40 hour work week, benefits, predictable income, relative job security. On the down side: a 40 hour work week, limited predictable income, training and growth limited by employers needs, geographically limiting w/o changing jobs. Government jobs are also vulnerable to the ups and downs in the local economy, more so if you're the "new guy" in the office.

All answers, advice, disclaimers, and pep talks welcome. I realize I'm in an uphill battle and will be for the first year or two. If I can make a go of it for three years, I believe I'll be good then for the long haul. Thanks.

 

[Ross (CO)]

Such a transition might also include one's transitioning their E&O to extend coverage for an increased volume of commercial work. Some E&O carriers say <10% commercial work in a year's income stream is o.k. with same premium. Others may cut off at anything greater than a 4-plex and others at 9+ units. The option of no E&O is still taken by some. I do not do commercial work yet I would be interested in gaining some experience there as well. I know some appraisers who used to do quite a bit of commercial work. Then the residential boom provided so much more volume and consistent revenue and they spoke of rarely being able to satisfy their commercial clients with the values presented --- same old story --- everybody thinks the business / commercial / retail / apartment is worth more than the data could support. After fielding the complaints about value-too-low the next follow-up questions were apparently focused to needing to provide verification of E&O ! .....Maybe I should wait a little longer to do commercial work.

 

[Terrel L. Shields]

Maybe I just like to live dangerously. I am not a great believer in E & O in the first place. I also find that people transitioning to commercial will find A-they will not get coverage with their (cheap) E & O designed for residential coverage or B-they will pay 10 TIMES for commercial coverage. The alternative (and I will not discourage anyone from doing it whether you have E & O or not) is to price your service accordingly and put $100 in a self-insurance account for each appraisal. If you go 3 - 4 years you will have a pretty good nest egg for legal expenses.

Best insurance? Cultivate the friendship of a good lawyer (which pays off in more than one way) and do your reports right. No one will ever be able to sucessfully sue you if ALL your work is USPAP compliant. In fact, you are not likely to have to go past the deposition phase.

The only reason I can see to have E & O is to get on the vendor list of those companies that require E & O. I make sure they pay more for their appraisals, too. They want it, they can pay for it.

ter

 

[Paul Ness MAI]

I'm unsure from the title of your post and your comments in your post - are you a residential appraiser now or in some other line of work?

My advice would be to bypass residential appraising and get right into commercial if you can find a good, ethical, honest and competent commercial appraiser in your area that is willing to take you on as a newbie. I wouldn't go the assessor's route unless you live in a populated and densely developed area with a good variety of commercial property types, otherwise you won't get the diverse training you need.

 

[David C. Johnson]

<span style='color:darkblue'>John,

Here's my two cents (or more):

Statistically speaking, you will find it to be incredibly difficult to find a commercial appraiser to work for so that you can learn while on the job. This is because there are numerous experienced residentially certified appraisers who have been doing commercial work for years who are also interested in going full-time commercial, which includes attempting to quickly finish-up their general certification. It is a demand and supply game. Currently (and as foreseeable into the future) there is an overabundance of supply, but a fairly limited demand. So, you have to have an edge to make you competitive with those who already have an edge on you (as just now mentioned above). Having a close relative who is a commercial appraisal company owner is such an edge -- if he or she likes you, and your side of the family. Accepting no fee (working for free) for the first two years is such an edge (while most trainees could never afford this). Just to get in the ballgame pretty good, go ahead and study the AI's educational materials, and challenge as many courses as you can. Just because you challenge many or most of these course does not mean you may not later come back and sit for them if you want. But this is very cheap, and it demonstrates you are serious about proceeding, and that you have the ability to understand the concepts. BTW, get your real estate sales license. It makes no difference whether you will ever use it. This is good basic info for appraisers, and for the same reasons discussed, it looks better to a potential commercial boss.

Without any of these things under your belt, you could get yourself competitive by paying the owner to let you work for free. Do you have any college (which certainly is a substantial bonus)? If so, while you were leaning full time there, how much did you charge the college to let them teach you? Well, whatever it was, double it because the new college will also be taking on an additional significant professional risk, where the old one did not. Trainees account for the majority of complaints and convictions at many or most states boards -- they put commercial appraisers out of business. (Of course, this is greatly complicated in some states where boards specifically target commercial appraisers through one of two main ways: 1. Through their occasional residential work; 2. Through their trainees' mistakes.)

"I'm also wondering if working for a county/state assessor is the way to go."

You bet it is. Just for the reasons you stated. You can get a whole lot of education there about real estate -- and some percentage of it will directly "translate." The contacts you would make from private enterprise appraisers would be very helpful to you for several reasons -- particularly when you decided to "privatize." Paul is correct though, in my opinion. If you have the choice between the two, go directly to private commercial if possible -- with one exception: Working for the state DOT (Department of Transportation) is a much better place to work -- much better -- particularly starting out. One caveat, you may very well learn some real bad habits that will later need to be overcome. But, these guys have it made. However, those jobs are not only pursued by quite a few deadly serious would-be appraisers or existing appraisers, you would also have to compete with deadly serious would-be state government workers -- and in isolated circumstances, both. Better get your rich uncle (and also the other one who is a longtime appraiser with the DOT) to start making serious campaign contributions in your name to the right location(s).

On E & O, it is probably not as common in commercial appraising, and this may partly be due to the expense, as has been mentioned. However, commercial appraisers are rarely asked for it by their clients (actually, I cannot think of ever being asked for it, but I have in residential work, but not by any of "the majors"). The upper echelon clients like the large national banks will never ask for it residential or commercial, to my knowledge. I could speculate, but do not necessarily know the reason for this. My impression is that it is a little like getting "bonded" -- to use this creature as a rough analogy. Some occupations demand it; "more desirable" ones do not -- there may be exceptions, but I have never seen one. Is commercial "better"? Yes, in many respects including this one regarding E&O. Also, introducing yourself as a commercial appraiser (which I often do not) versus a residential appraiser at a party, in any aspect of business, or most anywhere else can be the difference between night and day -- particularly if you are young or middle aged. Of course, some times making the distinction just causes confusion such as when encountering second shift of the local plants' blue collar workers at the watering hole after another grueling shift. They are more likely to ask you if you gave good marks to the Budweiser frogs or GEICO's recent gecko commercials on TV. I always say something like: "Damn, right I did ! -- Do it again too! Heard that! Good, now hear this: I'll take another cold BUD there, Jimbobbillymac. (Don't no residential appraisers go getting sore or nothing -- hey, this perception will start to fade away in a big way starting the day college degrees are required for new entries into the profession -- bet you might even notice it.)

Some of the best advice I have ever heard on E&O is not to broadcast whether you have it or not. Some other time on the rationale. Of course, like me and most other appraisers, Terrel probably rarely takes advice, good or otherwise -- hence our choosen line of work.

"No one will ever be able to successfully sue you if ALL your work is USPAP compliant."

I would like to believe this statement of Terrel's is true. But in some states it's probably not. If your licensing and regulatory board decrees your work non-USPAP compliant, as far as the courts are concerned, that's what it is. Then you could be successfully sued perhaps in civil court by an aggrieved property owner who did not get their value, or later found the hidden termite damage you missed regardless of you not being an inspector, or for the screwed up title work regardless of your not being an attorney. Whether you or your E&O ends up handing money over to the plantif, you were sucessfully sued. The best outcome you can hope for is just to be right back in the same place you were prior to being sued except for some grey hair, and a lighter wallet via expenses -- don't anyone tell me the suit wasn't sucessful --even when you "win." It would make little difference if every other state appraisal board in the country or the world would have said it was not only compliant, it was exemplary. You are then vulnerable on that work, and also all future work as you might now have a history of bad work. This is another reason bad boards gotta go. The list is endless.

Welcome aboard if you decide to go for it.

dcj</span>

 

[Terrel L. Shields]

"No one will ever be able to successfully sue you if ALL your work is USPAP compliant."

I would like to believe this statement of Terrel's is true.

Maybe I should qualify that. I am convinced and have said so recently elsewhere, that I can make a case of being USPAP compliant before a judge who has no prior knowledge of USPAP better than I could before a Board made up of folks who think THEY know USPAP.

I attribute no small part of that to the confusion invariably caused by the very existance of more than 1 person making a decision. Committee made decisions are frequently flawed, to some degree if more than three people are on the board.

Again, there will always be one aggressive know-it-all member of a board, one who just wants to go home and will agree to anything, and one who is indecisive-probably sought the position for one issue and once having resolved it doesn't have a clue about anything else. In those cases your fate is a crap shoot with loaded dice.

 

[Paul Ness MAI]

David, Very thoughtful post with a lot of good advice for John. Obtaining the real estate license is a great way to start, providing the basic real estate fundamentals. We forget that in the old days most appraisers got into the business coming from real estate sales.

 

[Steve Owen]

Good advice from all who posted. I thought Terrel's take on E&O was particularly astute.

For what it's worth, I went straight to General and never held a residential certification. However, I do a considerable amount of residential work (at my last audit, they said 77% - BUT, they were counting appraisals completed, not hours spent or fee generated.) Probably, I do from 40 to 50 percent residential.

A lot of appraisers would not like to do what I do. Many would find it difficult to switch formats from day to day - and, it is always a balancing act to keep the customers happy with turn times.

However, I have found that both residential and commercial work is subject to the business cycle. It's just that they cycle on slightly different time frames. So, for what it's worth, doing both can help keep you employed. I have only had a few very short periods of unemployment since I first started about ten years ago. Maybe I'm just lucky, but I think a lot of it has to do with my mixed business plan.

 

[Terrel L. Shields]

I went straight to General and never held a residential certification.

Smart way to do it. I was working for a mixed res/gen appraiser when I started and had sufficient commercial hrs. but not total hours, so I went CR then had to upgrade which was no picnic. Quite time consuming. If I had it to do over, I would have waited 6 more mo. and went straight to the CG.

 

[Steve Owen]

Terrel, do you still operate mixed residential/commercial business? If so, you might further spell out some of the advantages/disadvantages for the poster.