The real estate market is booming! If you want a low startup cost way to get in on the action, you might consider a home appraisal business. You can set your own hours and make a good living being your own boss.
A home appraisal business performs appraisals on land and buildings to determine the market value. Appraisals are usually done on behalf of a mortgage lender when a home is being purchased or refinanced. They may also be done for insurance reasons or when an estate is being settled. The appraiser evaluates the property and, based on the condition and comparable home sales, provides an estimate of the home’s market value.
According to IBIS World, the real estate appraisal industry has grown at .2% per year for the last five years to a market size of $9.8 billion as of 2021 and is expected to grow 14% during 2021. According to the Appraisal Institute, there were just over 78,000 real estate appraisers in the United States as of December 2018.
The home appraisal industry follows the real estate industry, and real estate is expected to do well in 2021, hence the projected home appraisal industry growth. Real estate is extremely sensitive to overall economic trends, so economic downturns negatively impact the home appraisal industry.
Your target market will be mainly mortgage lending companies.
Skills, Experience, and Education Useful in Running a Home Appraisal Business
There are several specific skills that you will need to open a home appraisal business.
- Experience. Experience in real estate or property valuation in some form is helpful but not required.
- License. You need to have a real estate appraisal license. Check with your state for course requirements. You will need to have a certain number of hours working under a certified real estate appraiser.
- Business knowledge and experience. You will need to have at least some basic knowledge of marketing, finance/accounting, and human resources.
- People skills. You’ll need to be able to build rapport with your customers so that you retain them as customers and keep them coming back.
Costs to Start a Home Appraisal Business
Here are the typical costs you will face when you open a home appraisal business.
- Setting up a business name and corporation costs approximately $200.
- Business cards, brochures, postcards for marketing $200 – $300
- Website setup $100 –$200 for a basic, do it yourself website, $1000 – $2000 for a professional site
- Real estate appraisal courses and licensing $4000
- Initial marketing such as Facebook ads or search engine optimization for your website $500 -$1000
Steps to Starting a Home Appraisal Business
Step 1: Write your Business Plan
After coming up with the idea, the next step in starting your home appraisal business should be to write a business plan. The business plan will make you focus on some important aspects of the business, such as who your customers are, how you plan to reach them, projecting sales and expenses, your value proposition to use for marketing, and more. You’ll also need to do some research to calculate exactly what your startup expenses will be and what your ongoing expenses will be.
Not only will a bank require you to have a business plan if you need financing, but multiple studies have shown that having a good business plan increases the odds of starting a successful business. Writing the plan helps you to think through all the aspects of the business and then serves as a guide as you begin.
Step 2: Name the Business
Finding the perfect home appraisal business name can be challenging. Not only does the name have to reflect what you do and be appealing to customers, but it also has to be available to use. You can check your state’s website to see if the name is available and register your name. Your name should make you stand out, reflect your brand, and tell potential customers exactly what you do.
Step 3: Form a Business Entity
A business entity refers to how a business is legally organized to operate. There are four primary business entities to choose from, which include a sole proprietorship, partnership, corporation, and Limited Liability Company (LLC). Each type of entity has its own pros and cons, such as liability exposure, costs, and administrative requirements.
Related: Comparison of Business Entities
Step 4: Select your Location
You can run your home appraisal business from your home.
Related: Choosing a business location
Step 5: Apply for Business Licenses and Permits
All states require home appraisers to obtain a real estate appraisal license. Requirements for the license vary by state, but to become a certified appraiser, educational training, passing an exam, and supervision from a licensed appraiser is typically required.
Step 6: Find Financing
Fortunately, the cost to start a real estate appraisal business is very low. If a loan is needed, the borrower(s) will need to have good credit and be able to invest 15-25% of their money towards the total start-up costs.
Step 7: Open a Business Bank Account
Keeping your business and personal finances in separate business bank and credit card accounts makes it easier to track the income and expenses of the business.
Step 8: Get your Marketing Plan in Place
A home appraisal business will need to set aside a budget to cover marketing costs on a continuous basis. Common marketing techniques for a home appraisal business include social media marketing platforms like Facebook or LinkedIn and online advertising, as well as brochures and flyers. Developing a website can be a significant expense, but it can also give your home appraisal business greater visibility online. Most of your business, however, will come from making direct sales calls to mortgage lending companies.
Step 9: Get Insurance
A home appraisal business needs several types of insurance for full coverage:
General liability insurance can help protect you from third-party claims of bodily injury and property damage.
Professional liability insurance protects you from claims of professional errors or negligence that result in a financial loss.
Worker’s compensation insurance covers expenses like medical bills and legal fees that a business might face if an employee were ever hurt while working.
Insurance policies will vary. To get the most accurate idea of what to budget for insurance, request quotes from multiple providers. When comparing the quotes, consider not only the premiums but also how the plan exclusions, coverage limitations, and deductibles compare.
Step 10: Hiring Employees
You may need employees to help you run your home appraisal business, or you may choose to be a one-person show. Make sure that you select people with appropriate experience and licensing.
In addition to salary costs, your budget will also need to include other employee-related expenses. Workman’s comp insurance, unemployment insurance, and paid time off are common expenses that a business will need to cover when hiring staff.
Related: Hiring your first employee
Step 11: Set up an Accounting System
Setting up an accounting system for your home appraisal business is critical to the long-term success of your business.
Staying on top of taxes not only keeps the business out of trouble with the government but the numbers can be used to track and monitor trends and cash flow in the business and maximize profits.
How Much Can You Potentially Make Owning a Home Appraisal Business?
Your revenue will depend on how many clients you get that provide regular business. An average appraisal costs $300 – $450. If you do 5 appraisals per week at an average of $400, you will make $104,000 annually.
Things to Consider Before Starting a Home Appraisal Business
Running a home appraisal business or any business will have its challenges. You need to be prepared and make sure that you know what you’re getting into.
Marketing and acquiring customers will be your biggest challenge and an ongoing expense. It will take some time to build a brand and a customer base to earn a steady income. You will need to make a lot of sales calls to begin to acquire clients.
You will face competition, so your marketing will need to make you stand out, and your prices will need to be competitive.
The amount of business you will get will fluctuate, and it will go down if there are economic downturns, so you need to be prepared.
Talk to other business owners for tips on starting a business and do your homework to determine costs. Research other home appraisal businesses to see what they offer and what prices they charge.