What are appraisers, and what is the big deal with them? Today we are going to break down what an appraiser is in the real estate industry, along with how much money they can make in a year and how to become one if you are thinking about pursuing a new hustle.
What do Appraisers Do?
The role of appraisers in the real estate industry is to use their extensive training and knowledge of valuation techniques in order to evaluate a particular property and deliver a detailed report to their client of how much the property is worth. They use a variety of valuation methods including replacement and cost approach, sales comparison approach (comparing the property to similar ones in the area that have recently sold), and the income capitalization approach that is also known as the discounted cash flow method. Using these three techniques, they come up with three different values that they then use their expertise and opinion to determine which ones to weigh more heavily before taking a weighted average of the three to deliver to their client as the final result known as the appraised value.
Typically, banks and other lending institutions make up the majority of appraisers’ clients. In the United States, lenders are required to maintain a level of independence between the appraiser and their clientele, so they have a list of approved appraisers that they are able to request bids from. The appraisers on their list are then notified of the request and are able to submit their bids to the bank, who is then required to select the median priced bid out of those submitted. This process can take anywhere from a few days to a few weeks depending on how many appraisers are in the area of the property being appraised as well as how busy they are. In times when the market is “hot”, it can take nearly a month to get an appraisal ordered, scheduled, completed, and approved by the bank. In other slower markets, the whole process can sometimes take as little as two to three days.
The purpose of the bank ordering and receiving the appraisal has to do with how they secure the loans they make to homebuyers. With a mortgage, the loan is secured by the home itself, and before they are allowed to lend the money they are required to have an appraisal of the property done to make sure the property is worth at least as much as they are loaning the buyer. This gives the bank peace of mind that in the case of the buyer not paying their loan payments, the lender can take ownership of the home and sell it in order to recoup their losses.
The other types of clients that appraisers run into are individual property owners looking to receive a professional opinion of their property’s value, whether it be for the purpose of potentially selling it at some point, refinancing the property with a lender and having a baseline of what their property is worth currently, disputing local property tax increases, or even fighting insurance rate changes. The private property owner as a client is much less common for appraisers, but does still make up the second largest portion of their business behind lenders.
How Much Do Appraisers Make?
Appraisers make different amounts based on the types of appraisals they carry out, their experience in the industry, and the area they are in. As an average, a winning bid on a residential appraisal across the United States runs between $300 and $500, so let’s use $400 as our average in this example. Using an example of a market that is relatively active like it is in early 2021 while interest rates are incredibly low, most appraisers could expect to receive between ten and twenty bid requests per day. If the success rate on bids is 10%, that means the average appraiser is winning one or two bids per day at approximately $400 each. If an appraiser only works five days per week and fifty weeks per year, that comes out to $200,000 per year before paying professional and licensing fees, sponsoring fees (if they work for an appraisal office), business expenses, etc. Assuming 40% in business expenses, this appraiser in our example could expect to make around $120,000 per year when the market is hot if they are consistently winning 10% or more of the residential bids they submit.
For more qualified appraisers working on their own (certified general appraisers being the highest level of experience and qualification in most states), they will more often be hired by lenders to appraise high value projects and can therefore charge significantly more. Think warehouses, strip malls, big box stores, vineyards, apartment buildings, skyscrapers, etc. It is not uncommon for these appraisers to charge anywhere from $5,000 to $50,000 or more for a single appraisal as the level of expertise they bring to the field is unmatched, and they have a captive market in the lenders and lendees needing to get a loan. Granted, these appraisals take significantly more time and effort than a residential appraisal that can be knocked out in only a few hours. These appraisals typically require the appraiser to travel long distances, incur lodging, food, and vehicle expenses along with spending multiple days in the field gathering data to best put together their appraisal. This level of effort and expertise truly shows when they deliver their appraisals on high-value properties -- it is not uncommon for these to be one-hundred pages or more of highly dense data gathered along with thorough explanations of how they arrived at their conclusions at every step of the way to explain their final valuation. Part of the value of these is the clarity offered in arriving at the value, with the aim of making sure all parties involved are agreeable with the accuracy of the result.
The highly-skilled and sought out certified general appraisers can make seven figures per year if they have become known for their skill and expertise in a particular niche, or have started their own appraisal firm and hired less experienced appraisers to work on their behalf. This is a common practice, and typically it will consist of one or two certified general appraisers who have a handful of trainees and licensed appraisers that go and collect data, perform the appraisal, and have the certified general appraiser in charge review the report before signing off on it and sending it to their clients. This is by far the most lucrative way to run an appraisal business, as you can have someone on a respectable salary go and collect data for a large appraisal and pay for their salaries easily with the large appraisals they are working on to learn the trade.
How Do I Become an Appraiser?
Although it is different in each state, most states require a certain amount of state-recognized classroom (in person or online) hours before being qualified to take a licensing exam. Depending on the state this can range from anywhere between 30 and 180 hours in order to qualify for state licensing exams. Upon passing a state exam, typically one enters a trainee or apprenticeship stage where they must work under a more experienced appraiser who has hit certain milestones (i.e. certain number of years practicing, number of appraisals performed, etc.) in their career and are deemed acceptable by the state board to teach and mentor new appraisers. In Texas, a trainee has to accumulate at least 1,000 hours of acceptable and verifiable appraising experience under someone licensed in the state.
In most states, this period for new appraisers lasts anywhere between two and four years before they are able to sit for their state exam to eventually become a fully-licensed appraiser in their state, able to operate independently or open their own office to perform appraisals for clients.
In summary, appraisers are a necessary force in the modern real estate industry where most real estate transactions involve bank loans, appraisers have high-income potential and is a great career opportunity for self-starters who seek to challenge themselves and are analytical individuals. Finally, the process to become an appraiser is different in every state but usually involves licensing courses and continuing education in addition to an apprenticeship period at the beginning of their career to learn from more experienced practitioners in the field.