How to Start a Real Estate Appraisal Business

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Our guide on starting a real estate appraisal business covers all the essential information to help you decide if this business is a good match for you. Learn about the day-to-day activities of a real estate appraisal business owner, the typical target market, growth potential, startup costs, legal considerations, and more!

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Start a real estate appraisal business by following these 9 steps:

You have found the perfect business idea, and now you are ready to take the next step. There is more to starting a business than just registering it with the state. We have put together this simple step guide to starting your real estate appraisal business. These steps will ensure that your new business is well planned out, registered properly and legally compliant.

STEP 1: Plan your Business

A clear plan is essential for success as an entrepreneur. It will help you map out the specifics of your business and discover some unknowns. A few important topics to consider are:

  • What are the initial costs?
  • Who is your target market?
  • How long it will take you to break even?
  • What will you name your business?

Luckily we have done a lot of this research for you. Skip on ahead to the Business Overview for more detailed answers to all your questions.

Choosing the right name is very important. We recommend checking if the business name you choose is available as a web domain and securing it early so no one else can take it.

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After registering a domain name, consider setting up a professional email account ( Google's G Suite offers a business email service that comes with other useful tools, including word processing, spreadsheets, and more. Try it for free

STEP 2: Form a legal entity

Establishing a legal business entity such as an LLC prevents you from being personally liable if your real estate appraisal business is sued. Consider using a registered agent service to help protect your privacy and stay compliant.

STEP 3: Register for taxes

You will need to register for a variety of state and federal taxes before you can open for business.

STEP 4: Open a business bank account

Using dedicated business banking and credit accounts is essential for personal asset protection.

When your personal and business accounts are mixed, your personal assets (your home, car, and other valuables) are at risk in the event your business is sued. In business law, this is referred to as piercing your corporate veil.

STEP 5: Set up business accounting

Recording your various expenses and sources of income is critical to understanding the financial performance of your business. Keeping accurate and detailed accounts also greatly simplifies your annual tax filing.

STEP 6: Obtain necessary permits and licenses

Failure to acquire necessary permits and licenses can result in hefty fines, or even cause your business to be shut down.

STEP 7: Get Business Insurance

Insurance is highly recommended for all business owners. If you hire employees, workers compensation insurance may be a legal requirement in your state.

STEP 8: Define your brand.

Your brand is what your company stands for, as well as how your business is perceived by the public. A strong brand will help your business stand out from competitors.

STEP 9: Establish your Web Presence

A business website allows customers to learn more about your company and the products or services you offer. You can also use social media to attract new clients or customers.

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Select your state below for an in-depth guide on completing each of these steps in your home state.

Business Overview

A real estate appraisal company's specialty is appraising land and buildings. Real estate appraisals are used when people buy a home or business, apply for a new mortgage or to refinance an existing one, need information for insurance reasons, and settle estates after divorce or death.

Appraisers prepare a written description of the property, draw up diagrams, and then estimate the value. They also verify legal descriptions of property with city or county records. Fair value is determined by property condition, values of homes in close proximity to the home being valued (called a "comp"), building replacement costs, and valuations based on professional valuation manuals and cost estimators.

Who is this business right for?

This business is ideal for individuals who are detail-oriented, good with numbers, like having a flexible work schedule and are highly motivated.

What happens during a typical day at a real estate appraisal business?

Real estate appraisers gather and verify data on residential and commercial properties. They measure structures, physically inspect the exterior and interior of buildings, photograph property, and analyze market sales, the architectural quality, and the intended use of the property.

They also perform in-house appraisals and valuations for individuals, stay on top of the current real estate market conditions, assist in the construction of financial models for the real estate industry, gather data on recent sales, pending sales, and current listings. Real estate appraisers also maintain property records, indicating changes in local property values over time. They may also prepare and defend clients in formal appeal proceedings with help from senior appraisers or other companies.

What is the target market?

Clients are usually homeowners, but may also be other businesses.

How does a real estate appraisal business make money?

Appraisers make money by charging a fee for appraisals. This fee is usually a flat fee, but may also be a per-hour fee.

What is the growth potential for a real estate appraisal business?

Growth potential is usually small. An appraisal business is usually owner-operated, but may be grown into a larger company if there is enough demand. Some larger firms include the Tri County Appraisal Group; A Quality Appraisal, LLC; and Dugger, Canaday, Grafe, Inc.

What are some skills and experiences that will help you build a successful real estate appraisal business?

You will need good people skills. You'll also need a license to appraise real estate, along with a minimum of required hours of courses and training. Check with your state for specific requirements and examinations for different types of appraiser licenses. An example for an real estate appraisal license requirements in Michigan can be found here.

What are the costs involved in opening a real estate appraisal business?

After you have your license and legal stuff out of the way, startup costs are very low. You can usually start with just a laptop and a professional suit — less than $1,000.

Where can I find a business mentor?

One of the greatest resources an entrepreneur can have is quality mentorship. As you start planning your business, connect with a free business resource near you to get the help you need.

Having a support network in place to turn to during tough times is a major factor of success for new business owners.

What are some insider tips for jump starting a real estate appraisal business?

Consider mentoring under a senior appraiser. This can be a hard business to break into, so it may be helpful to work under others for a set period of time.

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Growing Your Business

How to promote & market a real estate appraisal business

Set up a website, hand out business cards, and make contacts at networking events. You should consider networking with real estate agents, mortgage brokers, life insurance agents, financial planners, and local business leaders.

Recommended: Get started with local advertising for your business with a $300 credit from Yelp.

How to keep customers coming back

Provide excellent and honest service. Most of the people that get into this industry are selling their services as a commodity. The one way you can attract customers and keep them coming back is to sell your personality and stay competitive on price points. You can also attract more customers by doing a thorough job on the appraisal. For example, be objective, but also tell people how they can negotiate the price of the home and save themselves some money. Maybe the roof needs repair. These are objective facts you can convey to your customer, without being biased. At the same time, you're making sure that you are accurately representing the real value of the property.

How and when to build a team

You won't ever need a team of people unless you decide to grow your business. If you do decide to grow, grow organically as prospects and leads grow. When work gets to be too much for you to handle alone, consider hiring an assistant appraiser and train them to do your job.

Legal Considerations

State & Local Business Licensing Requirements

In most states, it is necessary to obtain a real estate appraisal licenseLearn more about licensing requirements in your state by visiting SBA’s reference to state licenses and permits.

Most businesses are required to collect sales tax on the goods or services they provide. To learn more about how sales tax will affect your business, read our article, Sales Tax for Small Businesses.

For information about local licenses and permits:

Maintain Personal Asset Protection

Don’t think that just forming an LLC, or any other type of business, will save your personal assets in case of a lawsuit or other matter by itself.

When your personal and business accounts are mixed, your personal assets (your home, car, and other valuables) are at risk in the event your LLC is sued. In business law, this is referred to as piercing your corporate veil.

Two of the simplest steps that will protect your business, and yourself, are to:

Open a business bank account

  • This separates your personal assets from your company's assets, which is necessary for personal asset protection.
  • It also makes accounting and tax filing easier.

Get a business credit card

  • This helps you separate personal and business expenses by putting your business' expenses all in one place.
  • It also builds your company's credit history, which can be useful to raise money and investment later on.
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To learn more about maintaining your LLC's corporate veil, read our guide and protect your personal assets.

Service Agreement

Real estate appraisal businesses should consider requiring clients to sign a service agreement before starting a new project. This agreement should clarify client expectations and minimize risk of legal disputes by setting out payment terms and conditions, service level expectations, and intellectual property ownership. Here is an example service agreement.

Recommended: Rocket Lawyer makes it easy to create a professional service agreement for your real estate appraisal business when you sign up for their premium membership. For $39.95 per month, members receive access to hundreds of legal agreements and on call attorneys to get complimentary legal advice.

Earning Potential

How much can you charge customers?

In general, you can charge between $300 and $400 for a two hour inspection. For complex inspections, or inspections that take several hours or days, you can charge $1,000 to $3,000.

The fee largely depends on where you live. In larger cities, you can command higher fees because rents are higher and home prices more expensive. People expect to pay more for appraisals in New York City, for example. They expect to pay less in a small rural town.

What are the ongoing expenses for a real estate appraisal business?

Virtually none. However, you must maintain your own computer equipment software to conduct appraisals. This should not set you back more than a few hundred dollars per year.

How much profit can a real estate appraisal business make?

A real estate appraisal business can earn between $30,000 and $200,000 per year, per real estate appraiser. Wide variation in income and revenue exists because of the inherent volatility across real estate markets. Some areas are more expensive and thus command higher fees. Other areas are cheaper and thus command lower fees.

There's also the fact that inexperienced appraisers earn less because of their lack of experience, education, or both. More experienced appraisers tend to charge more for their expertise.

How can you make your business more profitable?

Making an appraisal business more profitable can be done in one of several ways. You can consider staging homes that you appraise, assist in the sale and purchasing of homes, and do more in-depth inspections for individuals who want them.

Next Steps

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