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Extinction of the Fee Appraiser?


by Aaron Brown
James Brown & Associates
Portland, OR

Welcome to the first commentary section. As mentioned in the news this will be a small monthly article where appraisers can share their brilliant opinions on matters relating to the appraisal industry. I, the developer of Zscribe, am doing the first commentary since I probably won't be able to find anyone else at such short notice!!!

During one of my demonstrations of Zscribe at Valuation 2000 the woman to which I was demonstrating the program commented that it appeared the program was designed for fee appraisers. As the designer of the program (myself) works for a fee shop run by my father this is probably true. I am a very limited and unimaginative individual who can't help but design things that I would use and not things that would be useful to others. It was the woman's next comment, however, that really got me thinking. She said (and I am quoting her from memory so it may not be exact):

"The fee appraiser is going to go the way of the dinosaur."

The woman who made the comment happens to work for a large accounting firm that also handles appraisal assignments. It would be easy to dismiss her comment as her own prejudice against small fee shops. I have  had appraisal institute classes with this individual, however, and I know that she is very insightful and intelligent in class (which most likely extends to her work) and does not throw out comments at random. She is furthermore the fourth person who has made that exact same comment within the last year (not all of them working for large accounting firms).

This is naturally something that I find distressing. While we believe there is great potential in Zscribe it is currently an economic drain (albeit a small one as we try to keep expenses down). We pay our house payments doing appraisals (the same as the rest of you). Could they be right? Are the small independent shops doomed to close their doors and (hopefully) find work with some of the large accounting firms?

The reasoning behind this line of thought is clear. The large accounting firms have huge resources. They can upgrade to technology that the small shops cannot afford. They have the man power to do large appraisal jobs (mass appraisals) with a timely dead line. They can capture economies of scale (one person writes the area analysis, another pulls economic data, another pulls demographics, and a staff of clerical support produces the report). This argument makes for pretty convincing evidence.

There is support on the other side, however, that the fee shop is far from doomed. The trend in the technology industry has been to make things more and more affordable for small business. You can now get a quality COLOR laser printer for $3,000 and below (depending on options). Furthermore when it comes to implementing technology the small shop typically makes decisions and acts faster than large companies. I noticed that several small shops had their own domain name and email address (example: while some of the big shops were still using individual America Online or Mindspring accounts. At valuation 2000 there were several small shops (Picture Manager and of course our own product Zscribe immediately spring to mind) that had actually developed technology to be used by appraisers.

As for having economies of scale the large shops also have high overhead (nothing short of a downtown office will do). Despite these economies of scale they frequently charge more for their appraisals. We've followed large accounting firms and found that they had been paid nearly twice the fee we were receiving for what we considered an inferior product.

I won't even go into the conflict of interest in having the accounting and the appraisals of an account done by the same company. Imagine the fear the accounting firm has of losing a large account! It seems to me as long as the fees charged by the large accounting firms are significantly above those charged by the fee appraiser there will always be a market for the small shops. I do believe that there is a place in the market for large appraisal firms (mass appraisals, etc.) I just don't subscribe to the idea that they are fit to take over the entire appraisal market. As a member of a small shop, however, it might be my own wishful thinking.