Real Estate Appraising - Is it for You?

Can I be my own boss?

As an appraiser, you can be your own boss.  Even a beginner can technically be his own boss.  As previously discussed, some appraisal firms acquire all of their appraisers as  “subcontractors”.  Any person who holds status as an appraiser, including trainees/registered appraisers, may act as a subcontractor.

This means that the appraiser is not technically an employee. When an appraiser acts as a subcontractor, he is supposed to dictate certain things for himself.  The company he is performing work for is not supposed to tell the appraiser how to do his job.  The appraiser is simply providing his professional service to the firm. 

In reality, however, there is often no viable difference in the duties of an employee appraiser, and an appraiser who is acting as an independent subcontractor.  This is particularly true when the appraiser is at the beginning level of a trainee appraiser.  The appraisal firm that he is working for manages almost everything he does.  For technical purposes, however, the appraiser can say, by rights, that he is his own boss. 

When a firm pays an appraiser as a subcontractor, the firm does not make deductions to the appraiser’s paycheck.  Instead, he pays the appraiser the entire amount, or gross amount, of the appraiser’s earnings.  At the end of the year, the appraisal firm will provide the appraiser with tax form 1099.  This form states the entire sum of money that the firm paid to the appraiser for the calendar year.  It is up to the appraiser to report these earnings and pay the consequent taxes. 

Appraisal firms like to employ appraisers on a contractor basis for the simple reason that they do not have to pay taxes on the appraiser. Employee taxes may include, at a minimum, social security tax, unemployment tax, and workers compensation.  By using contract appraisers, they avoid employee taxes.  In this aspect, it is cheaper, many times over, for an appraisal firm to acquire you as a subcontractor, rather than hire you as an employee. 

While the appraiser may appreciate his status as an independent subcontractor, he may more appreciate status as an employee, where he may earn such benefits as vacation pay, health insurance, and retirement.

Summary

Part of the beauty of real estate appraising is that, under favorable circumstances, you can be your own boss in a short amount of time.  The lure of self-employment attracts thousands to the industry each year.

Different Scenario – Same Result

Here’s a second scenario.  The mortgage lender faxes an order to an appraisal firm.  The loan could be for a sale or for the refinance of a home.  The order includes an estimated value, a loan amount, or a sales price placed on the order by the loan officer.

Based on an understanding between the lender and the appraiser, the appraiser is expected to reach this value.  Once again, instead of inspecting the property and selecting comparable sales according to the condition, characteristics, and location most similar to the subject property, the appraiser selects comparable sales that will support the value necessary to accommodate the loan amount.  This is called backing into value. 

When an appraiser backs into value, or works towards a predetermined value, he has converted his disposition from an appraiser rendering his professional opinion, to an overpaid data entry robot.  There are many overpaid data entry robots in the appraisal industry, and the number is ever increasing.

The Fantasy

An example of a correct scenario would be as follows.  The lender gets a lead on a home equity loan.  He orders an appraisal from a firm.  The appraiser receives the order, schedules the inspection with the homeowner, and proceeds to complete the assignment.  He renders his professional opinion, objectivity intact.  The lender receives the appraisal and works up his loan according to the actual value estimate on the appraisal.  Most of the time, this is a fantasy.

Lender Demand

Why would appraisers be practicing adverse to the code that they are legally required to abide by?  After all, noncompliance with USPAP gives state appraisal board officials, grounds to suspend or even revoke an appraiser’s license.

The reason is simple.  The industry that appraisers serve, that is, the mortgage lending industry, demands it.  The faster a mortgage company can close a loan, the more money they make.  They can’t work up a loan without a value for the home.  They are not willing to wait for an appraiser to do his job, first.  They work up the loan based on the amount of the pre-comp, or they place their own value on the appraisal order form, and expect the apprai