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Editor’s Note: As a follow up to Training the Future, Dustin Harris shares a few methods for keeping trainee appraisers and building a business. rivolous State Board complaints are a quiet crisis in the appraisal profession. Here is an overview of the issue and one state’s attempt at making the process more fair.
Trainees, Employees and How to Build a Business
by Dustin Harris, The Appraiser Coach
Why would an appraiser find, hire, teach and put time and money into a trainee when there is a good chance he or she will become their competition eventually? The answer is simple: because your goal is not to train your competition, it is to gain a loyal employee. In order to reach your goal, there are things you can do to lessen (not prevent) the probability of them leaving you. Here are some helpful tips.
Non-Compete Contracts
Admittedly, I am starting with the weakest link. Most experts will tell you that non-compete clauses are simply paper-tigers. They might create an extra-layer of potential protection but they likely will not hold up in court. The non-compete is simply a contractual agreement between the employer and the employee that they will not leave and become direct competition. Non-competes should have clauses which protect your finances, business growth potential, as well as confidential information and company secrets.
You cannot protect common knowledge but ideas and ways of doing business which are unique to you and your firm, should demand some level of shelter. In order to increase the ability to hold water should a lawsuit ensue, non-compete contracts ought to include a specific geographical area and have a reasonable sunset clause. Find a good employment lawyer and have him or her write up a strong non-compete which reflects the values and norms of the area you live in. You will likely pay $300-$500 for this service but they are worth having for no other reason than as one more layer of protection.
Golden Handcuffs
One of the biggest reasons trainees leave is the “grass is always greener” principle. They believe that work, finances, life, or even the coffee would be better in their own firm. Quite often, it is not but once they find that out for themselves, the bridges for return are usually burned.
To some degree, you can inoculate your employees from the deadly “I’m outta here” virus with more transparency. For example, it is likely that your employees know your gross income. They have access to the monthly appraisal work log. They may not handle the accounts receivable but they can see how much money you are billing. Since most employees have never been a business owner, they really have no notion of the difference between gross and net income. Even if they understand the basics of the concept, they likely have no idea just how much money it takes to pay taxes, overhead, hardware, software, education, license fees, supplies, charity, etcetera. This is not an attack on them personally; their lack of experience in this area is understandable if they have never been on the other side of the fence. Most business owners keep their financials top secret. I believe this may be a mistake. Though I am not a fan of disclosing specific financial data with all employees, trainees are a different animal. Helping them understand what actually transpires financially in a business may squelch some of the whiplash they get from constantly looking over their shoulder for the next best thing.
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Over the years, I have taken home between 28 and 37 percent in taxable income. After all is said and done, about two-thirds of my gross stays inside the business. That is much less than most employees would think. The golden handcuff management style is to keep your employees loyal by helping them to see that you are not secretly getting rich while paying them a pittance (just telling them will never convince).
Depending upon individual circumstances, I pay my appraisers (not trainees) an average of 40-50 percent on every appraisal they complete. In other words, they are actually taking home more per appraisal than I am and I still have to deal with the stress of running the business- hardly a temptation to hang out their own shingle.
To sweeten the pot, educate them on how much actually goes into running a business that you do behind the scenes. Once they realize the time, energy and stress that goes into the day-to-day process of an appraisal business, they will likely be more inclined to stay with you. This is to say nothing of the other perks (such as the built-in book of clients) that come with working with an established appraiser.
Eventual, Potential Ownership
I am not a big fan of equal business partnerships (my wife made me put in the word “business”). I have a Masters Degree from the school of hard knocks and I have learned personally that equal partnerships are never really equal. One or the other of the partners will do most of the work while both of you split the revenue. It is a recipe for disaster (though I have been told of partnerships that work).
On the other hand, people like to feel a part of something more than just getting a paycheck and usually put more care and loyalty into it if they have some stewardship in its success. It is like a teenager with their own car verses borrowing one from mom or dad. You can guess which one receives more care and attention. Partial ownership (or at least merit-based compensation) should be a consideration if you desire your trainee to last (and why wouldn’t you?). I have seen otherwise challenging relationships do quite well where the junior associate has an interest in the company’s outcome.
It’s not Just About the Money, Stupid
Though monetary compensation is important, studies show it is not the number one consideration for most employees. Surprisingly, their reasons for staying firstly, deal with the overall working environment and other aspects of the job before the paycheck comes into play. That does not mean they do not care about their salary. They obviously would not be at work if it were not for the pay but there are many other factors that are considered as part of the package.
What is your work environment like generally? Do your employees drag themselves in, get distracted while they are supposed to be working and count down the minutes to 5 P.M. or are they generally happy? It can’t be all fun and games. Work is work but do you make it a safe and fun environment? Certain perks will do wonders for your employee’s loyalty.
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For example, consider allowing your employees to work from home. You could also give them responsibility beyond their simple job description. Many human beings thrive on having stewardship over certain aspects of the business. Trust them. Allow them to make decisions without always having to check in with the boss and support them in the decisions they make.
We do not work in an industry that typically requires a time clock. Be flexible with your employees and understand that they have lives beyond the workplace. Do not misunderstand–I am not saying that anything goes. This would be a business time-bomb but allowing your employees time to pick up kids from daycare, go to a doctor’s appointment or work away from the cubical can do wonders for retention. My rule of thumb is to say “yes” whenever I can unless it seriously steps on my ability to run an effective business.
Conclusion
I often have clients ask me the $64,000 question, “How do I keep my trainee or employee from becoming my competition?” My answer is always the same, “You can’t.” There simply is no way to a 100 percent guarantee. I have been a religious follower of the above guidelines and still ended up losing some very talented individuals. These ideas can minimize the hemorrhaging but if you are going to hire employees, you are going to lose them as well. This is a reality you cannot run from.
Now, go create some value!
>>Visit OREP/Working RE’s Appraiser Trainee Blog where mentors, sponsors, and trainees can exchange information.
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About the Author
Dustin Harris is a super-successful, self-employed, residential real estate appraiser. He has been appraising for nearly two decades. He is the owner and President of Appraisal Precision and Consulting Group, Inc., and is a popular author, speaker and consultant. He also owns and operates The Appraiser Coach where he personally advises and mentors other appraisers helping them to also run successful appraisal companies and increase their net worth. He and his wife reside in Idaho with their four children.
We’re always listening: Send your story submission/idea to the Editor: dbrauner@orep.org.
by Jay Bartholomew
I just want to say that I enjoyed this article. I agree 100%. I am in the process of training several appraisers. I too get paid anywhere from 35-45% of the gross. Its amazing where the money goes to keep a business in operation. I find that all the positive attitude and energy you portray goes a long way. Especially with all the negative situations we can run into. Again, Great article!!
-by Marsh Bilby
Fool me once shame on you, fool me twice… After having already lost much of my intellectual capital to the AMCs who never sent me a thank you note for my talented employees, it will take an awful lot to convince me to go down that road again. The authors article encapsulates my thought process BEFORE HVCC. What is consistently missing in these types of articles is an analysis of risk vs reward. Prior to HVCC, the main thing that kept my employees from leaving was their realization of the difficulty of obtaining good clients. They would see the effort it took to locate and nurture good business over many years. That is a high hurdle that any new business must cross. Now all that is required of a new appraiser is a few hours of filling out forms online and the willingness to take low fees which are often higher than the fee splits they had been receiving. Realistically the only remaining hurdle is the two years of experience. As anyone who has properly trained anyone will tell you that at about two years you are finally starting to get a return on your investment and just in time for them to leave for greener pastures. Tons of risk, little reward. If the required experience was 10 years the model would flip. Obviously there needs to be a balance but personally if I was confident that I could get at least four years from my trainee, I would consider it.
Not surprisingly the emphasis for trainees has been on classroom education which is the golden goose for our largest organizations and the education establishment. It is clearly not about proper knowledge and training which can only be obtained through several years of hands on experience. This should be obvious to anyone in the industry which begs the question, why? Either the regulators have done an extremely poor job of learning the issues or there is pressure from the large AMCs and banks to have a greater supply of appraisers to add to their de facto staff appraisers. I sense the panic starting to build in them as they are starting to see the writing on the wall that supply and demand will force reasonable appraisal fees and defeat their model of national appraisal firms which they have only been able to accomplish through government intervention. Stay strong my friends, they are starting to crack!
-by Craig Custer
The only consolation I have taken from losing quality people is that I know that I have trained them well and leveled the playing field by having well trained, competent, professional competitors. I can always compete with that…..its the others that I can’t compete with….because they give away the little they possess.
-by Jim Zerbi
Until lenders are willing to raise fees to levels which reflect the amount of training, expertise and office support structure (software, tech equipment, MLS membership, E&O, Con Ed) that a competent appraiser must have, it makes no economic sense to train others to enter the field. The current level of fees is barely enough to sustain a one person office. Until fees are significantly raised, it makes more sense to discourage new people from entering the field. This will create an appraiser scarcity that when it is finally drastic enough, will force fees up. This is the only economic model to follow. It is said that if the there is not enough appraisers, then lenders will just quit using appraisers. Honestly, that is what they want to do anyway. Either regulators enforce safe lending practices by not budging on the need for competent appraisals, or our profession is doomed anyway. Training new appraisers to work for low fees will not change that.
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