Cash Flow Business Tip of the Week: Pricing a Note Appraisal

note-appraisalThere are two major decision areas when pricing and charging for a note appraisal referred to you by a financial professional.

(1) It is my opinion (garnered from experience) that it’s wise to conservatively price the appraisal you do for the client of a referring professional. It is natural to want to earn a “nice and fair” fee for the work you do, and you should. Keep your fee reasonable. In my opinion, you should charge less than you would an individual note seller who is going to be a one-time client. There is not a much competition in the note appraisal business– but what you do not want to happen, ever, is for your referring professional to find that your fee is substantially above another appraiser they may have found. Remember you are in this for the long haul, and want many repeat referrals as well as referrals to other financial professionals. I have been asked about doing free appraisals as a way of establishing a relationship with a financial professional. This is something you need to think long and hard about. Under certain conditions, it might be ok to do a complementary appraisal to help establish a relationship.

When a note appraisal client turns into a brokerage client

The second major decision area is what to do about your fee when the note holder decides to sell. In previous tips, I addressed the fine line we walk regarding converting an appraisal to a brokerage transaction. If the note holder decides that they would like to sell immediately, I think it is fair and reasonable not to charge for the appraisal. Your brokerage fee will be more than fair compensation. If the request for your brokerage service comes a year after the appraisal, there probably shouldn’t even be a discussion regarding the fee you already earned. I believe the cutoff time should be somewhere within a 90-day area. Everybody has to make his or her own policy. You should be flexible. Remember one of the major reasons for doing appraisals is to build relationships.

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