What's a fair fee for the appraiser who completes each assignment with the diligence necessary to meet their intended user's needs? There really isn't a single hourly rate that's right for every appraiser and no one fee that's right for every assignment. But there are a couple of things appraisers must understand: (pq)
1. It doesn't matter how much money you gross. What matters is how much money you have left to buy groceries, pay tuition, etc.
2. Clients don't care what you earn on an hourly or yearly basis; only what you charge.
Many appraisers obsessed with their gross income have no idea what they actually net. It's often years before they realize they're not making as much as they thought. A good way to get a handle on what you really make is to properly formulate a target income that considers expenses, income taxes, retirement, health insurance, etc. A targeted hourly billing rate is excellent in this regard and useful in quoting fees for odd jobs such as updates and low end valuation assignments.
First, decide on a proper annual income figure. Compare the appraisal profession to other similar professions, such as title abstractors, real estate sales persons, and home inspectors. Factor in cost of living in your region, your training and education, and years of experience. Keep in mind - many of these competitive salaries include benefits such as retirement, insurance, and paid vacations.
Next, include an accurate picture of your business expenses. Whether you work for yourself or not, factor 25-35% in business expenses. Understand that at least 25% of the payroll check must be set aside for income taxes and retirement. Now, consider three scenarios with targeted annual incomes of $30,000, $55,000, and $75,000. This means the appraiser would have to gross about $40,000, $75,000, and $100,000 to realize the $30,000, $55,000, and $75,000 of income to live on, respectively. How much will you have to gross to achieve your targeted annual income?
Also consider other expenses you pay such as fuel, license, E&O, equipment, MLS, and the ratio of billing to office time. Office time is the time you spend in the office, but aren't generating income working on valuation services.
In scenario one, the appraiser must gross $43.84 per hour. To earn $75,000 and $100,000 the appraiser must gross $82.20 and $109.60 per hour respectively.
Anyone who works for themselves knows that a considerable amount of time is spent in running the day to day business. So a billing rate of approximately $79.72 would be required to achieve an income level of $75,000.
PRICING ODD JOBS
Once you've developed your hourly billing rate, try pricing odd jobs. Take a request to "reassign" an old value opinion. If the intended use was for the secondary market and the updated assignment is too, then little additional work may be required. However, if it was originally done as a drive-by and the new lender requires an interior inspection, you might figure it will take 3 hours to do. Simply multiply your personal hourly billing rate times the time you estimate the job will take (If your billing rate is $80.00 an hour, then your fee would be $240.00 (3 hrs. x $80.00).
Another example might be work you're doing for a divorce case. They might need to value both a home and an office building. A good way to price this job is to simply quote your hourly rate. After all, lawyers, plumbers, and therapists do it. Billing on an hourly basis is not traditionally done in the appraisal profession because we typically focus on lending work. Lenders ask for a fixed fee quote for filling out the "Good Faith Estimate". In reality, a good faith estimate is just that, an "estimate". It does not require an exact fee, but it may be difficult to change everyone's mind on that. Certainly, non-lender work is not shackled with an inclination towards set fees. In my personal practice I've found that an hourly fee basis is acceptable for most non-lender work when tempered with a maximum limit. For example my quote is, "x dollars per hour, not to exceed $3,000.00". Keep in mind that if you charge per hour you must keep a work log to justify your fee.
THE VALUE OF TECHNOLOGY
If you've adopted some new technology that saves 10% in work time over your competitors, then you should quote fees based on the amount of time it would take your competitor to complete the assignment (not the time it would take you). If you quote your fee on an hourly basis you should add 10% to your personal hourly rate to pay for the cost of the technology. The benefits of state-of-the-art technology are leveraged in a highly competitive market. I'm reminded of the story of two hikers, accidentally startling a bear in the woods. As the bear charged, one hiker said to the other, "We can't outrun that bear!" The other hiker replied, "I only have to outrun you!" Even in a market where appraiser fees are low, it's possible to succeed if you can out-perform your competitors.
This article only scratches the surface of the topic of earnings and billing rates. I hope this is enough to enlighten appraisers on the benefits of utilizing a well thought out system for setting fees, as well as the pitfalls of relying on a haphazard system with little or no cognitive input. This writing is not intended to advocate artificially high appraisal fees, as our work must be cost effective to users of our services. However, if enough appraisers are ignorantly setting fees artificially low then this will adversely affect the overall market.
Many competent appraisers will be driven out of the profession if the market dictates artificially low fees over a long period of time. A balance in fee structure (not too high or too low) will ensure that reliable cost-effective appraisal products and services will be available to the general public.
Editor's Note: This article was condensed for space in our print version of AppraisalPress. You can read the full article at the a la mode labs website here.