15 Costs to Consider When Starting an Appraisal Business

Man researching the costs involved in starting an appraisal business

Thinking about starting an appraisal business? If you’re already a fully licensed and accredited real estate appraiser, chances are you have already been working with a more experienced appraiser. Perhaps you’re taking over that business because your mentor is retiring; maybe you’re relocating to another market; maybe you’re starting a competing firm.

Depending on circumstances, the costs of starting an appraisal business can range from fairly high to very low. Taking over an existing business might involve buying out the previous owner, but aside from that cost (which might be considerable), the necessary licenses and physical equipment might not amount to much.

Here are several possible costs and contingencies to consider. Some of these start-up costs and financial considerations might not be relevant to your situation, but they’re at least worth noting.

  1. Once you have paid for your licensing and other certifications, you’ll need a computer, good internet service, and a decent “business casual” wardrobe.
  2. You’ll need to know whom you’ll mainly be working for (banks, individual homeowners, investors). You’ll need to know how much you can expect to earn, per appraisal, in your market area; how much you can expect to make in your first year; and how much in succeeding years. If you’re just starting out in a market, you might need to set low expectations for your first year, but your second and succeeding years will probably bring much more money. If you’re taking over an established business, you’ll probably make at least as much as your predecessor made.
  3. Bear in mind that real estate markets—both commercial and residential—are volatile. Expect brisk and slack periods, and be sure you have enough money saved up to get you through the latter. Real estate markets tend to be cyclical, but the cycles are only vaguely predictable.
  4. Consider establishing side businesses such as home inspection, staging, and perhaps even brokerage. (It takes a certain personality type to make it as a broker, though. Don’t assume that because you know real estate from an appraiser’s perspective, that you can represent buyers or sellers successfully.)
  5. Consider the cost of advertising. If you’re taking over an existing business—especially if you’re working primarily with banks—your advertising budget will probably be small. If you’re starting a new business, your up-front advertising spend could be higher.
  6. You can advertise via social media for very little money, if you know your targets. But if you’re a conventional appraiser, whose work comes mostly from home sales, you won’t have to spend on print or broadcast advertising.
  7. If you’re starting a new business, a marketing/branding consultant might be a worthwhile investment—but do your research, to ensure you’re hiring consultants who know what they’re doing. A bad marketing program is money down the drain.
  8. You need to establish your brand. Business cards, logoed merchandise such as pens or shoe-horns, and bumper stickers for company vehicles are cheap and effective advertising tools.
  9. For tax purposes, you may want to incorporate, if you haven’t already. Various types of corporate entities exist, and you might need to spend some money consulting a lawyer as to which one is best for you—and pay the lawyer’s fees for setting up your corporation. However, registering your corporation with the IRS for tax purposes is free.
  10. If you know the basics of accounting, you can probably handle that job yourself, with basic accounting software. However, if your business is complicated and multifaceted, hiring a professional accountant to handle your affairs (at least at tax time) might make sense.
  11. Be sure your permits and licenses are all kept up to date. They are usually inexpensive, but penalties for letting them lapse could be high.
  12. An online legal team such as Rocket Lawyer can provide templates for various legal documents, as well as personalized legal advice, for a monthly fee—usually less than $100.
  13. Business insurance is a must. Discuss, with your insurance agent, policies that will protect you and your employees—and will protect your non-business assets in case your business incurs liability.
  14. A business website allows customers to learn more about your company and the products or services you offer. You can design your own website for very little money, but you might want to hire a professional website designer who knows what works and what doesn’t.
  15. Continuing education—courses that keep you up to date on the latest developments in the real estate business—can add to your expenses, but they usually are not very costly.

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If you’re taking over an existing business—especially a business where you have been employed—consider paying yourself approximately what you have been earning, at first. Going forward—perhaps after two years—you can anticipate higher earnings. But prepare for lean profits at first.

Keep an emergency fund on hand for unexpected business expenses, such as a new computer or a big increase in your office rent. Otherwise, set a monthly budget and stick to it.

When starting an appraisal business, if you spend your money sensibly and keep going after new business, you should develop a strong practice.

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Article written by Joseph Dobrian. Joseph Dobrian has been writing about commercial and residential real estate, and real estate-related finance, for more than 30 years. His byline has appeared in The Wall Street Journal, The New York Times, The New Yorker, Real Estate Forum, Journal of Property Management, and many other publications. He is also a noted novelist, essayist, and translator. His website is www.josephdobrian.com, and he can be contacted at jdobrian@aol.com.

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