Are we a one-trick pony appraisal shop?
Patrick M. Lamb May 2nd, 2008
Our core competency is performing residential and commercial real estate appraisals. This has been our trick for nearly four generations. Historically, the real estate appraisal business has been a very durable industry considering the demand for our services run with certain marketplace inevitabilities that have provided a steady flow of business, such as at times of death, taxes and property transactions.
However, the way we perform real estate appraisals has changed several times in the last twenty years as a result of shifts in banking policy, legal regulations and new technology. I’ll focus mostly on technology, as that is the one issue I can influence and manage the most.
In the 80’s word processing, electronic databases and the internet were nonexistent. Real Estate Appraisers were required to go to the County court house to gather sales documents directly from the County Assessor’s Office; property photos were physically developed at the a one-hour photo mart, and all appraisal reports were hand-typed, mostly by a receptionist. This all took time and a specialized skill set that the market place paid good fees for – appraisal fees were at their highest at that point.
In the early 90’s, however, the dawn of the computer drastically changed the way information was recorded and accessed. Real estate information that was originally in paper format held by the County and large title companies suddenly moved to a computerized database format. Larger real estate appraisal firms like ours benefited greatly from this transition since we could afford to purchase or license access to these expensive database services. Instantly, our appraisers could perform their duties without spending countless hours working through large catalogues of printed records at the court house.
Independent real estate appraisers working in small shops or out of their home could not feasibly cover the expense of a database. As such, they stuck to the old ways of appraisal reporting. Eventually, the independent appraiser couldn’t compete as our firm was able to cut weeks off of the delivery of our reports.
Consequently, as access to real estate information became available at their fingertips, appraisers found themselves having to perform more of the research and report assemblage tasks that were previously performed by hourly workers. Learning these new technical skills really presented a challenge for the well-established appraisers who have been operating under the previous model for years.
Simultaneously, the overhead structure of our firm was changing as the increased use of computers and real estate databases eliminated the need for typist and young researchers. These people were beginning to be replaced with hardware, software, and technical specialists who knew how to setup and maintain the systems.
Computer databasing was the first big technological transition, for which I think our firm capitalized on effectively – strengthening our competitiveness. Unfortunately, our position was short-lived and the problems with the appraisers adapting to the changing business model only escalated with the emergence of the Internet and the digital business environment.
The explosion of the Internet and digital revolution began in the mid to late 1990’s and into the early 2000’s, occurring hand-in-hand. This was about the time I entered the company. Coincidentally, my college experience at UW was heavily influenced by new technology considering Microsoft donated millions to ensure that every student had free access to computers, particularly ones that carried MS Office products. At the same time, the hottest concentration on campus was Information Systems. As a result, I got tons of exposure on a daily basis to Word, Excel, Access and other related programs and applications that were beginning to dominate the outside business world, as well.
Relative to my classmates at UW I was no expert by any means. Conversely, on joining the company I noticed how little the majority of appraisers at our office and in my professional apprasial networks knew about computers, and my first competitive advantage was discovered. As a result, I was able to exchange my computer literacy for appraisal mentoring, and my career development moved to the fast track.
In my first year at the firm I was an apprentice to several residential appraisers; doing research, taking pictures, making maps and filling out forms for my mentors. Over this time I was exposed to the existing systems and technology that was developed for performing residential appraisal reports. The systems were impressive yet suffered from a multitude of technical and human errors.
In part, due to the high volume of residential mortgage work caused by the deregulation of the mortgage industry (i.e. Fannie Mae and Freddie Mac) and an unparalleled drop in interest rates following the last recession, the need for streamlining drove the implementation of technology efficiencies in the residential lending process.
The streamlining was brought on by digital form reporting that standardized the residential appraisal process making it far less time consuming. Eventually, the larger banker clients saw this as an opportunity to put downward pressure on fees and higher expectations for fast turn times. Consequently, the established appraiser networks faced with shrinking fees, felt that the one way to stall the fee drop was to constrain the number of appraisers in the industry. So, they set out to increase the barriers to entrance by upping educational requirements and eventually passing legislation that mandated all trainees to be licensed. (This argument was masked as a way to limit fraud, yet that should be the role of the established appraiser mentors not the naive apprentices. The increased barriers only hurt new employees trying to get a start).
Suddenly, our residential department was caught in a storm. Fees started falling, education costs soured, technical staffing and systems costs increased, pressure from clients escalated and, worst of all, the feasibility of hiring and training new employees began to fail. This stalled our potential for growth. Meanwhile, all of this occurred simultaneously with the appraisers having to struggle to learn these new computer skills. To say the least, the morale and tone of the appraisers was poor at best, despite the spike in appraisal order volume resulting from the hot real estate market and declining interest rates. Moreover, the company bottom line was suffering and I felt we desperately needed a change in direction.
The first change I made was to become a trainee in the commercial department to hedge myself from the ensuing decline of the residential appraisal market. Again, my technical skills and namesake played an intricate part in securing training opportunities with mentors. Within the first couple of months in the commercial department I realized that the technology and systems used to perform narrative commercial reports was five to ten years behind the residential department and depending on the appraiser, sometimes even greater. There was little to no use of Excel; only a basic understanding of Word; no use of digital filing or archiving; no use of Access databasing, and little understanding of computer networks and Internet capabilities.
Most commercial appraisers in our office and throughout the nation were well-established, (of an older generation). These folks contained massive amounts of education, experience and knowledge, yet were entirely resistant to the new and emerging ideas. More so, their influence in the firm made them seemingly invincible to change, as even the boss was hesitant to learn new tricks. So things just stumbled along for them. I also noticed, despite their great depth of knowledge and background, that there were no superstar employees. Their revenues and production were flat, if not on the decline. This in part, was due to all the time wasted fidgeting with the report formatting, editing, publication, and redundancies. In sum, they all shared a deficiency of digital wherewithal.
It quickly dawned on me that if I could create a new system that combined my computer skills with some of the digital efficiencies I witnessed in the residential department, I could really compete in my office and go head-to-head with any of my competition in the marketplace. The best thing about it was that the fees for a standard commercial appraisal report are 10 to 20 times greater than the fees for residential appraisal reports. And with the system I envisioned I could produce commercial narrative reports at a rapid speed, yet with greater reliability, less errors and nearly seamless transferability of data. Therefore, I began developing my first template.
Creating a template was definitely a work in progress, an evolution that still exists today. The process has sharply refined my data and word processing skills. It also forced me to think digitally in all aspect. To make the whole process work well, our entire office needed to become digital in unison. We had 30 years of appraisal history locked in paperback copies, sitting on shelves collecting dust. Worse off, our filing system for the old reports was random and burdensome to access.
So I hired a buddy of mine to come into the office and scan as many documents as he could, then convert the paper into a Word document that could be filed. From this project I was able to categorize hundreds of zoning code descriptions, market area descriptions, building type descriptions, etc. that were accessible to anyone on the network. The best thing about having access to this data was that it was now in a digital narrative format that read well - likely created by the well-educated, experienced and knowledgeable real estate appraisers that I mentioned before. A young trainee, like me, could simply cut and paste a sample and modify the existing statements to meet the needs of the new assignment. He or she could build off of what has already been created and wouldn’t have to stare into a blank page.
Within the template design stage, I also saw that technical skill was not the only component of a success. More so, I had to learn how people interfaced with the system- it was my exposure to the human behavior and reactions that began to mold my vision into a reality. This took a few years to perfect…which is an overstatement since it’s still nowhere near perfect.
In 2005, the first year the template was relatively operational, I became the highest producer in the company. I had just earned a general certification and all my revenue came strictly from my own production- no supervisory role at this time. In comparison, my revenue stats were nearly 50% higher than the next highest producer. In 2006, I became a supervisor and mentor to three employees, in which they were required to use my system. My gross revenues that year jumped roughly 62%. Then, following minor tweaks and refinements to the system, in 2007 my gross revenues jumped another 26%, (or 88% over 2005). My efforts now account for nearly 30% to 40% of the overall company revenue.
Overall, my template system has provided many competitive advantages. Nevertheless, it has been ridiculously difficult to convince established appraisers in our office to adapt. This is one of the greatest challenges I’ll face in the next one to three years as other firms within our market begin to benefit from their own technological advances that are likely to be better than what I’ve created. I fear that this competitive advantage will be lost.
To combat this threat, I would like Lamb Hanson Lamb Appraisal Associates, Inc. to start thinking on a 6-month cycle, where at every period we examine if we’re operating as efficiently as possible with up-to-date technological systems and methods.
As we’ve seen in the last twenty years, systems will always change and it usually happens right after you get comfortable with the old one. Yet, if we can create a culture here at Lamb Hanson Lamb Appraisal Associates, Inc. that embraces the willingness to change, while abandoning the comfort of “doing things the old way”, we might be able to ride this one-trick pony way off into the sunset.