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Appraising the Appraisal Business

June 3rd, 2013 by Bill Collins Leave a reply »

Appraising the Future of the Appraisal Business: Is the Clock Ticking?

Will improving economic conditions and rising mortgage interest rates bring about a dramatic, long-term slowdown in appraisals for mortgage financing? (Note the sharp decline in mortgage applications last week reported by the Mortgage Bankers Association later in this newsletter).  As we have pointed out in recent newsletters, several projections of a large drop in refinance mortgages by the end of this year have been made by several respected analysts.  Possibly this is occurring sooner than anticipated? Last week, HSH Market Trends discussed this in their weekly newsletter:

“Is the rise in rates sufficient to quell refinancing? Yes, to a fair degree. Refi waves and booms require several components; first, a period of "high" interest rates over perhaps several years followed by a period where rates are perhaps 1 percent (or better, more) below the rates available in the initial period. That’s enough to get the ball rolling, but to expand the market for refinancing, rates need to continue to decline, so that more borrowers find opportunities to shed old loans for new.

Once rates have stopped declining (and to be fair, even with the spring’s swoon, the lowest rates were seen at the end of 2012, so we have been rangebound at best), the pool of available refinancers begins to become sated as the window for profitable refinancing stops widening. When rates eventually do rise, marginal borrowers (for example, those with an interest rate break of less than one percentage point) may head to the sidelines and hope for another opportunity — that is, hope for rates to decline again. As such, demand is diminished, excepting those homeowners for whom a 4 percent rate makes their transaction work. If rates hold at 4 percent, that available pool becomes sated over time, too, if it hasn’t been already as rates declined. Homeowners looking to replace old mortgages are of course sensitive to even small moves in interest rates…”

As appraisers plan for the summer season and attempt to strike an appropriate balance between their (recently) busy workloads and vacation time, it is important to begin setting into motion activities which will keep their appraisal practice strong. 

In the coming months, this newsletter will attempt to help appraisers begin work now that will provide for a solid foundation for their appraisal practices next year.

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AppraiserNews is a FREE publication, supported by advertising and sales of products designed to help appraisers support and grow their businesses. Please consider supporting us today by seeing what we and our sponsors have to offer.

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Appraising an Appraisal Business: Many Older Appraisers Not Willing to Make the Effort to Change Their Business Model Should Begin Planning How to Maximize the Value of Their Appraisal Practice Before it is Too Late

Real estate appraisers know quite well the tendency for property owners to view the value of their property much more optimistically than other nearby competing properties.  The same holds true with the owners of appraisal businesses, particularly when it comes down to intangible value.

Those real estate appraisers who are experts when it comes to bricks and mortar but don’t understand what drives business value should begin doing their homework.  Don’t ask your accountant to tell you what your business is worth, unless she or he includes business valuation as part of their practice.  Also, don’t blindly start calling business brokers unless they have a specialty selling appraisal practices (or are willing to take the time to understand the profession and what drives value).

Some illustrations:
Big Bank Appraisal Company: An appraisal business with $500,000 in annual sales and a client base where several large banks or AMCs constitute 90% of the business.

Tri-County Appraisal Service: An appraisal business with $200,000 in annual revenue and a diversified client base with no single client accounting for more than 10% of the business and diversification of the practice into many private appraisal areas.

“Rules of thumb” were popular many years ago in appraising businesses and professional practices, particularly multiples of gross or net income.  Real estate appraisers know the difference between the value of income streams from “AAA” rated tenants as opposed to “Mom and Pop” enterprises.  In valuing appraisal practices, the same rules apply: there is no simple “rule of thumb”.

I think it is fair to say that Big Bank Appraisal Company might cause prospective purchasers to have concerns related to the strength of the future income stream when compared with Tri-County Appraisal Service. 

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To help appraisers evaluate which AMCs are right for them, we have compiled this directory of over 200 AMCs and National Appraisal Companies, listing complete, up-to-date contact information and other details for each listing.

If you’re looking to expand your appraisal practice, our Directory of Appraisal Management and National Appraisal Companies is a great place to start.

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Please visit our website now to make your purchase securely or contact us at (877) 434-2825 for more information on this exciting new directory!

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Let’s Make the Estimation of Intangible Business Value Even More Difficult: What is the Value Enhancement of the Social Media/New Media Efforts Made by Tri-County Appraisal Service?

Big Bank Appraisal Company’s marketing efforts consist of gift baskets during the holiday season and a periodic “thank you for your business” card to their accounts.  On the other hand, Tri-County Appraisal Service has a broad based social media presence.

Recently AOL announced the acquisition of the blogging site Tumblr for $1.1 billion in a move designed to allow them to connect with the more youthful, online customer base of Tumblr.  Interesting.  AOL reportedly still has 3 million “lost souls”, “trapped in dial-up hell” as recently noted by BGR’s Brad Reed.  So, AOL takes this dial-up revenue and buys the money losing Tumblr.

Appraisers who are seriously thinking of retiring or leaving the field during the next couple of years can take actions which might provide them with more money than they anticipated if they plan carefully, starting now.  Technologically challenged appraisers can 1) upgrade their operations utilizing the newest appraisal software and 2) engage new media/social media firms to assist them in proactively marketing their appraisal practices. 

Just remember: that 30ish appraiser looking to expand his or her business will find your business much more enticing if you have an efficient practice and are engaged in the new world of social media.

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Rates & Dates

Freddie Mac, the Mortgage Brokers Association (MBA) and HSH Market Trends all reported sharply rising mortgage interest rates in their most recent surveys. 

On May 30th, Freddie Mac reported that 30-year fixed-rate mortgages jumped to 3.81% from the previous week’s rate of 3.59%. They also noted that last year at this time the 30-year rate was 3.75%. 

Frank Nothaft, vice president and chief economist for Freddie Mac stated in the release that: "Fixed mortgage rates followed long-term government bond yields higher following a growing market sentiment that the Federal Reserve may lessen its accommodative policy stance. Improving economic data may have encouraged those views. For instance, the Conference Board reported that confidence among consumers rose in May to its highest level since February 2008. Meanwhile, the S&P/Case-Shiller 20-city composite index for March rose to its highest reading since November 2008 (seasonally adjusted). All 20 cities had positive monthly gains, led by a 3.2 percent increase in Las Vegas."

The MBA in its most recent Weekly Mortgage Applications Survey released May 29th, for the week ending  May 24th, reported that 30-year rates with conforming loan balances ($417,500 or less) increased to 3.90% from the previous week’s rate of 3.78%.   The average contract interest rate for 30-year fixed-rate mortgages with jumbo loan balances (greater than $417,500) rose to 4.07%, from 3.93% one week earlier.  Rates for FHA backed mortgages also increased to 3.62% from the previous week’s rate of 3.53%.

In their press release of May 29th, the MBA reported a decline of 8.8% in mortgage applications.  Refinance applications represented 71% of all applications, down from 74% last week and reached the lowest share since April 2012.

On May 31st, HSH Market Trends reported that 30-year mortgage rates rose to 4.01% from 3.83% the previous week, the first time rates exceeded 4% since June 2012.  They also reported a rise of 18 basis points in FHA backed 30 year mortgages which increased from last week’s rate of 3.48% to 3.64%. 

Additional information from Freddie Mac can be found by going to: Primary Mortgage Market Survey PMMS – Freddie Mac

Additional information from the Mortgage Bankers Association can be found by going to their site at: Research and Forecasts – Mortgage Bankers Association

Additional information from HSH can be found by going to: HSH.Com

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Ask Angie

We would first like to congratulate our most recent winner: Nevada appraiser Holly Chaffee.  Holly was the first to answer correctly that Henry David Thoreau was the author of the quote “Go confidently in the direction of your dreams! Live the life you’ve imagined"; Steve Jobs said that “Creativity is just connecting things. When you ask creative people how they did something, they feel a little guilty because they didn’t really do it, they just saw something. It seemed obvious to them after a while”; and Groucho Marx exclaimed "A child of five would understand this. Send someone to fetch a child of five.”

Today’s questions:

1. Who Said: "The best way to predict the future is to invent it."

a) Benjamin Franklin
b) Alan Kay
c) Steve Jobs
d) Cheryl Sandberg
e) None of the above

2. Who said: "The perfect is the enemy of the good."

a) Steve Jobs
b) Voltaire
c) Alexis Stewart
d) Martha Stewart
e) None of the above

3. Who said: "Without music, life would be a mistake."

a) Joni Mitchell
b) Nietzsche
c) Madonna
d) Ludwig Van Beethoven
e) None of the above

The first person to respond with the correct answers wins a choice of one of the following:

One Free Regular Listing on AppraiserHelp.com

A Free Copy of the Directory of Appraisal Management Companies (Available to Members of AppraiserHelp.com and FHAAppraisers.com FREE!)

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Tell us what you think!

We invite your responses to any of the issues raised in this newsletter. Please e-mail us at: bill@appraiserhelp.com with your thoughts!

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We really hope you find our newsletter to be informative!  If you have any input on future topics for discussion, please email me your questions and I will do my best to address them in the next issue.  If you want to look back at past issues you can see our archive at www.appraisernews.com

Regards,

Bill Collins, Appraiser Help Inc.

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