Should I Start an LLC for My Real Estate Appraisal Business?

Starting a limited liability company (LLC) for your real estate appraisal business can provide several benefits.

Most importantly, an LLC structure offers limited liability to its owners, which can protect their personal assets from lawsuits and creditors.

For a real estate appraisal business, lawsuits can arise from things like a client suffering an injury at your offices or allegations of unfairly low valuations of a client’s property.

LLCs are also affordable, highly flexible (from a tax point-of-view), and can make your real estate appraisal business seem more credible.

Recommended: Use Northwest to form an LLC for $29 (plus state fees).

A magnifying glass held in front of a house

Do I Need an LLC for a Real Estate Appraisal Business?

LLCs are a simple and inexpensive way to protect your personal assets and save money on taxes.

You should start an LLC when there's any risk involved in your business and/or when your business could benefit from tax options and increased credibility.

LLC Benefits for a Real Estate Appraisal Business

By starting an LLC for your real estate appraisal business, you can:

Protect your savings, car, and house with limited liability protection
Have more tax benefits and options
Increase your business’s credibility

Limited Liability Protection

LLCs provide limited liability protection. This means your personal assets (e.g., car, house, bank account) are protected in the event your business is sued or if it defaults on a debt.

Real estate appraisal businesses will benefit from liability protection because of the risk of professional liability and other general business risks.

Example 1: A customer sues, claiming they suffered significant financial losses because the property you appraised for them sat on the market for too long without a buyer. Limited liability will safeguard your personal possessions from the payment of damages imposed by the court.

Example 2: A client files a lawsuit against you, saying that you gave their property an unfairly low valuation and caused them to sell it for far less than it was worth. Having that limited liability from your LLC will protect your personal assets if the court orders you to pay a large sum in damages and your company goes bankrupt while making those payments.

Example 3: The slippery floor in front of your office caused a significant head injury to one of your customers. She blames you for not putting up a slippery floor sign and has sued you for damages. Having an LLC structure in place will protect your private assets if you are ordered to pay her damages.

An LLC will also protect your personal assets in the event of commercial bankruptcy or loan default.

To maintain your LLC's limited liability protection, you must maintain your LLC's corporate veil.

LLC Tax Benefits and Options for a Real Estate Appraisal Business

LLCs, by default, are taxed as a pass-through entity, just like a sole proprietorship or partnership. This means that the business's net income passes through to the owner's individual tax return.

The business’s net income is then subject to income taxes (based on the owner's tax bracket) and self-employment taxes.

Sole proprietorships and partnerships are taxed in a similar way to LLCs, but they do not offer limited liability protection or other tax options.

S Corp Option for LLCs

An S corporation (S corp) is an IRS tax status that an LLC can elect. S corp status allows business owners to be treated as employees of the business (for tax purposes).

S corp tax status can reduce self-employment taxes and will allow business owners to contribute pre-tax dollars to 401k or health insurance premiums.

The S corp status requires that the business pay the employee-owner(s) a reasonable salary for the work they perform.

In addition, the business might need to spend more on accounting, bookkeeping, and payroll services. To offset these costs, you'd need to be saving about $2,000 a year on taxes.

We estimate that if a real estate appraisal business owner can pay themselves a reasonable salary and at least $10,000 in distributions each year, they could benefit from S corp status.

You can start an S corp when you form your LLC. Our How to Start an S Corp guide will lead you through the process.

Credibility and Consumer Trust

Real estate appraisal businesses rely on consumer trust. Credibility plays a key role in creating and maintaining any business.

Businesses gain consumer trust simply by forming an LLC.

A growing business can also benefit from the credibility of an LLC when applying for small business loans, grants, and credit.

Northwest will start an LLC for you for just $29 (plus state fees).

Get Started

How to Form an LLC

Forming an LLC is easy. There are two options for forming your LLC:

You can hire a professional LLC formation service to set up your LLC for a small fee
Or, you can choose your state from the list below to start an LLC yourself

Select Your State

For most new business owners, the best state to form an LLC in is the state where you live and where you plan to conduct your business.

Do LLCs Need Insurance?

All businesses need insurance to protect their business assets — even LLCs. This is because the limited liability protection from an LLC protects your personal assets, not your business assets.

Insurance is necessary for real estate appraisal businesses to pay for property damage, medical expenses, and even legal cases and penalties.

Common Situations Business Insurance May Cover for a Real Estate Appraisal Business.

Example 1: One of your appraisers accidentally leaves a water faucet on during an inspection, resulting in flooding on the lower floor. A general liability policy should cover the cost to repair any damage to the home.

Example 2: During an appraisal, an employee leaves their measuring wheel out, causing a third-party to trip and break their arm. The general liability insurance should cover their medical bill, along with any potential legal expenses.

Example 3: During an appraisal, you fail to lock the side gate to the owner’s fenced-in backyard. Later, their dog gets out and bites a neighbor’s child. They are suing you for medical costs associated with the injury, as well as for pain and suffering. A general liability policy should cover these expenses.

Other Types of Coverage Real Estate Appraisal Businesses Need

While general liability is the most important type of insurance to have, there are several other forms of coverage you should be aware of. Below are some other types of insurance all real estate appraisers should obtain:

Professional Liability Insurance

A real estate appraiser’s professional expertise is counted on by sellers, buyers, and the bank. A professional liability policy, also known as errors and omissions insurance, covers legal expenses associated with negligence claims brought on by human error and/or misunderstanding.

Commercial Property Insurance

Whether you own or rent, it is important to ensure proper coverage to your building and its contents should a loss occur. Commercial property insurance will help pay to replace or repair property that is damaged in a covered event.

This coverage is typically available as part of a business owner’s policy.

Workers’ Compensation Insurance

Required by most states, worker’s compensation insurance provides medical benefits and income replacement should an employee be injured or fall ill due to a work-related incident. While most states allow business owners to exclude themselves, those involved in the day-to-day operation of the company are urged to consider including themselves on the workers' compensation policy.

Commercial Auto Insurance

Whether you drive a personal or business automobile, your personal auto policy excludes accidents that occur while on the job. To ensure proper coverage, a commercial auto insurance policy is necessary. It will cover the cost of repairing damage to vehicles involved in an accident, as well as medical expenses for anyone injured.

Should I Start an LLC FAQ

Choosing the right business structure depends on your business’s unique circumstances and needs. However, unless your business is very low risk (like a hobby), an LLC is likely the better option.

Visit our LLC vs. Sole Proprietorship guide to learn more.

At a minimum, you’ll need general liability insurance and professional liability insurance.

Read our Business Insurance article for more info.

After obtaining your license and taking care of any necessary legal matters, the cost of starting a real estate appraisal business is relatively cheap. In most cases, all you need to get started is a laptop computer and an appropriate business suit, which will cost you about $1,000.

Visit our How to Start a Real Estate Appraisal Business guide to learn more about the costs of starting and maintaining this business.

The ongoing expenses of running a real estate appraisal business include equipment maintenance, marketing, and insurance.

Learn more about running a real estate appraisal business.

Real estate appraisal businesses make money by charging a fee for appraisals. They can either charge on an hourly basis or on a project basis.

Learn more about starting a real estate appraisal business.

A real estate appraisal business appraises buildings and land. This helps people buy homes as well as apply for mortgages and determine an estate’s value for insurance purposes.

Real estate transactions often require appraisals, so as long as property conditions are not static, there will be demand for real estate appraisal businesses.

Annual incomes of real estate appraisers range from $50,000 to over $200,000.

Learn more about starting a real estate appraisal business.