The Commoditization of the Commercial Appraisal Industry

In 1991, I flew from Dallas, Texas, to Dayton, Ohio, to appraise a self-storage facility for the first time in my career. The facility had cost around $2 million to construct but subsequent overbuilding had saturated the market and it was now worth around $600,000.

“Excess profits breed ruinous competition.”

The truth of that maxim sank in as I wrote the appraisal report. Economic profit, I’ve read, is temporary. Think of a good idea. Good. Build a factory, sell your product and six months down the road someone has improved upon it and undermined your profit. Over the course of my career I have observed the same principle in the commercial appraisal industry. What was once a lucrative business for young, energetic entrepreneurs has become a challenging arena. Some of us thrive on that sort of thing.

In a Skype session yesterday with business consultant, James Bishop of Sales Xceleration we discussed the two pervasive and universal questions asked in a request for bid for an appraisal report. Price and turnaround time. The truth is, fees for appraisals have gradually declined over the course of my career. I see these two questions as evidence that the commercial appraisal industry is becoming commoditized.

The rise of national appraisal firms like C.B. Richard Ellis (CBRE), Cushman and Wakefield, Valbridge, and Integra have all expedited the process. This news article notes the recent entry of behemoth JLL into the commercial appraisal market. As indicated by Mr. Bishop, two possible responses to the commoditization of a product are differentiation, an arduous task in this field, or gains in efficiency (our current course of action).

This is no level playing field. Goliath looms large and casts a long shadow. But David had agility on his side and an attitude of defiance that just wouldn’t quit. We’ve made it our aim to become a national appraisal firm and that’s exactly what we’ll do. Presuming, as I’ve been taught to say from my youth, Lord willing.