How to Start a Home Appraisal Business
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.
Business Overview
A home appraisal business performs a property appraisal on land, residential real estate, and buildings to determine the property valuation. 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.
Industry Summary
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.
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Industry Trends
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.
Target Market
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. Each state has requirements to obtain a real estate appraisal license. Check with your state for course requirements. You will also 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.
Checklist for Starting a Home Appraisal Business
If you’re thinking about starting a home appraisal business, it’s important to do your research first. Here is a checklist to help you get started.
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.
Related: How to write a business plan
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 the 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.
When deciding on which business entity is best for a home appraisal business, it normally comes down to the sole proprietorship and Limited Liability Company.
A partnership opens the owners up to unnecessary personal liability because if a partner does something to get the business sued, or runs off with cash from the business, the other partners are personally liable to repay. The corporation can be a good choice because it separates the business assets from the owner’s assets. If the corporation is sued or certain business debts can’t be paid back, the owners aren’t personally responsible to repay them. The downside to the corporation is that it is more complicated than all the other entities and requires more administration than the LLC. If you plan on raising a lot of investment though, the corporation is usually the better choice.
That leaves the sole proprietorship and LLC.
The sole proprietorship is the least expensive and easiest entity to start which is appealing. The downside is the owner is personally liable should anything happen to the business, which is an important consideration. The LLC offers the ability to operate as a sole proprietorship with the liability protection of a corporation. Depending on the state, the cost to form an LLC runs from $40 – $500, which is pretty inexpensive for protecting the owners from business-related lawsuits and certain debts.
Related: Guide to forming your LLC
Forming an LLC sounds complicated and expensive, but using an entity formation service guides you through the process so you know it was done right.
Some popular LLC formation services include:
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Step 4: Apply for Business Licenses and Permits
All states require professional licensing for home appraisers to obtain a real estate appraisal license, typically from the state real estate appraiser board. 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.
In addition, there are general business licenses such as a tax ID number and an Employer Identification Number.
Certifications can be useful in gaining professional training and generating more trust from clients. Credentials such as the Certified Residential Appraiser, Licensed Residential Appraiser, or Certified General Appraiser is available from organizations such as the Appraisal Institute.
Related: Common business licenses, permits, and registrations by state
Step 5: 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 6: Open a Business Bank Account
Keeping your small business and personal finances in separate bank accounts is important to track the income and expenses of your business and identify trends.
Many banks offer free business checking accounts, so be sure to find a cost-effective option for your business.
Step 7: 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 through networking with real estate agents and mortgage lending companies.
Related: Low-cost ideas to market a new business
Every business is going to need a logo. Make a professional logo in no time with the free logo makers from BrandCrowd and Canva.
Step 8: Get Business Insurance
There are several types of insurance to consider when starting a home appraisal business. A few of these include:
– 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.
The cost to insure a a home appraisal business will vary depending on several factors. 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 9: Hire 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 10: 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.
StartingYourBusiness.comHow much does it cost to start a home appraisal business?
Here are some of 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, $1,000 – $2,000 for a professional site
– Real estate appraisal courses and licensing $4,000
How much does a home appraisal business owner make?
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.
Are there grants to start a home appraisal business?
It’s extremely rare to find a grant to start a home appraisal business. If you search for business grants, you will come across a lot of scams and misinformation. Occasionally an organization will offer grants to start a business, however, be skeptical and don’t provide any sensitive personal information or pay money to get more information.
Legitimate federal grants can be found at Grants.gov and you can check on your state’s economic development office to see if they have any grants available.
What is the NAICS code for a home appraisal business?
The NAICS code for a home appraisal business is 531320.
The NAICS code (North American Industry Classification System) is a federal system to classify different types of businesses for the collection and reporting of statistical data.