TIME IS OF THE ESSENCE!

RESPECT THE PYTHON OF PROGRESS

Last week we talked about the secrets of some of the best companies and best communicators in the world and the how and why of it all. We talked in the last episode about Steve Jobs, Howard Schultz of Starbucks, John Chambers of Cisco Systems, and how they have been able to find the object of their own enthusiasm, the object of their passion, the bigger mission in what they’re doing, and then articulate that in an inspiring way to the people important to that mission. I’m going to go deeper in next week’s episode on the secrets of killer communication because I think it is so vital for those who want to grow, to scale, to lead people, to build a killer culture, and potentially sell their businesses at some point later on. However, I wanted to talk on a slightly different topic this week. We’re still talking about communication, to a degree, but I want to speak directly to the appraisers in this one. 

I see this issue on a daily basis as a coach in the appraisal industry, and I also like to think I have my finger on the pulse of what is happening, not only in the appraisal industry, but the greater markets as a whole. I’m an avid stock investor, a real estate investor, and have a voracious appetite for information. In addition to talking with people in our industry every day, my days are consumed with taking in vast amounts of information in a variety of areas and then looking for the connections, the common themes and threads, and where the patterns are. As you are all probably well aware, we are in the midst of massive change across almost every sector, every business, every industry. As you are all hopefully also aware, if you’ve listened to this podcast for any period of time, I come from the Zen and Stoic school of detachment from labeling something as either good or bad. I don’t always succeed at this, but I try not to waste too much emotional energy caught up in the label because I know I’ll need that energy to decide the best decision and direction in handling that thing, if it even needs to be dealt with at all. The biggest issue I see with appraisers today is either that many are resting on the fact that, because they were told 20 years ago that AVMs would put them out of business, or that some other technology would make them irrelevant and they’re still around today, any news that sounds similar to that today is worthy of the same response from them. There’s a crack in that logic though, friends, and it’s that 20 years ago, AVMs simply couldn’t put appraisers out of business because that wasn’t what they were being developed to do. They were being developed as modeling tool to get better data. Data is an inanimate and unemotional piece of information. It’s not some evil genius with intentions of its own. 

Now, you might say, “ok Blaine, the data might not be evil, but those who build those models are trying to put us out of business!”, but I think you’d be wrong there too. The thinkers, the developers, the builders of those kinds of things are rarely focused on who or what their things will put out of business, they’re thinking about what that thing will be able to do for the industries they’re building the tool for. The collection of data for a multitude of purposes has been around for as long as humans have been around. The process of data collection getting better with time has also been the arc of progress since the dawn of time. The data has gotten better with time because the means to collect it has gotten better with time. I’ve talked about Moore’s Law in past episodes, but to recap it briefly, Gordon Moore, the former CEO of Intel, once postulated that the number of transistors on an integrated circuit board would double every two years. A 41% increase over the prior year, and he said that would continue that way for at least the next decade, and that was in 1975. In 1975, there were approximately 5000 transistors on an Intel brand integrated circuit board. Want to take a guess how many there are today? ‘Let’s see, back of a napkin math, 1975 to 2021, doubling every 2 years, 5000, that means 10,000 in 77, 20,000 in 79…’ Folks, there are between 500,000,000 and 1 billion transistors on an integrated circuit board today! Moore’s law became less of a law around 2010 or so when the semiconductor business slowed a bit, but then, in 2018, manufacturers began developing a new process to get back up that level of increase in the number of transistors that could fit on a board, and even exceed it. Why? Because that’s what progress is all about. You either grow or you eventually die. 

I said I wanted to talk specifically to appraisers in this one so allow me to connect appraiser with semiconductors and transistors. Are AVMs going to put us out of business? No, because AVMs don’t have intentions or emotions, they’re simply models based on a program. However, as we’ve already said, the ability to collect data, to process data, to know what data is important and what isn’t gets better and better every year. If Moore’s law predicted a doubling of transistors every two years, and we’ve gone from 5000 transistors in 1975 to 500,000,000 transistors in 2021, imagine what those data models, those computer programs processing the data, the ability to collect the data, and then how that data is used to make decisions has gotten better? I hate to tell you all this, but his gotten exponentially better and has no plans of stopping. So, while a bunch of you are out there protesting Core Logic for collecting data from appraisals, they’re still collecting the data. Fannie and Freddie are collecting the data. Clear Capital is collecting the data. Anow is collecting the data. Facebook is collecting the data. Zillow is collecting the data. Redfin is collecting the data. Everyone is collecting the damn data friends! And their intention may not necessarily be to put appraisers out of business, but that eventually could be the end result. You see, when appraisers heard back in 1990 that AVMs would put them out of business and they’re still here today, busier than ever, it was because AVMs weren’t trying to put us out of business. Appraisers were simply asking the wrong question and framing the issue incorrectly. 

We’ve had 20-30 years to figure some things out and, for a lot of appraisers, they haven’t bothered. We’ve had 20 or 30 years to figure out the tech, the process, to rethink how we do things, to leverage data just like those big evil corporations have, and to a large degree, we haven’t bothered. We’ve been standing on our soap boxes screaming, ‘an AVM can’t smell the cat piss!’, ‘a desktop can’t see the mold!’, and ‘I’ll bifurcate over my dead body!’ And you’re right, an AVM can’t smell the cat piss, but so what? Do you think they haven’t figured out a way to risk model that issue down to a miniscule percentage of concern? They just build the cat piss into the risk model and spread it out over thousands of bits of data. They just build the mold, the cracked foundation, the bad roof into the risk model and spread it out over thousands of bits of data. They’re getting to the point, my friends, where the cat piss doesn’t matter to them any longer. Does that mean they won’t need us anymore? No, that’s not what I’m saying. What I’m saying is that, if you think appraisers are still relevant today because they have the ability to smell cat piss or see some mold, you’ve framed the issue incorrectly. Those home are an infinitely small percentage of their problems, and there is no guarantee that a human appraiser will catch it or note it in the report anyways, so they build their models to deal with that. 

Those of us who continue to think our appraisal is the product will continue to fall behind, my friends.

Your appraisal is just the beans, and remember from last week, the beans are just the means. What you’re really selling is your processes and systems, your customer and client service, your communication, your ability to leverage technology, it’s your production line, it’s the efficiencies you’ve built into your business that allow you to complete the appraisal in considerably less time than all the other appraisers, and with more accuracy, better data, and a more well supported opinion of value. Those of you who still think you’re being engaged by clients because you’re just such a good appraiser, think again. That may be one of the reasons, but it’s just one of many. The big problem I see with the appraisers we talk with every day is that they all tend to think they’re the best appraiser in their market based on how intelligent they believe themselves to be, and how many orders they’re turning down daily. The one’s who think super highly of themselves tend to also be the slowest, the most backed up, the one’s booked out a month, and the one’s patting themselves on the back for doing so. Friends, if you can’t see the problem with this mindset and approach, please continue to listen to these episodes. This is a huge problem in the appraisal industry right now and the vast majority of appraisers think this is somehow a good thing. It’s simply one more piece of evidence of just how out of touch some industries can be from understanding their markets, their clients and customers, and their ability to read the room, not to mention read the writing on the wall. We’re not going to solve this problem in today’s episode, but I’m hoping to at least plant some seeds for you to consider as the industry continues to evolve and big changes loom on the horizon. 

Imagine for a moment a local gas station convenience store patting itself on the back for always being out of bread, or cigarettes, or worse yet, gas! You drive up wanting to fill up your tank and pick up some bread for the kids lunches only to find signs on the gas pumps saying, “Sorry folks, we’re so popular and in demand that everybody bought up all our gas! Come back in 2 weeks and maybe we can serve you, and maybe for .25 more per gallon!” You think, ‘well that’s kinda shitty, I need gas now!’, but you’re there anyway so you amble into the store to at least get some bread only to find the shelves bare. You ask the attendant what’s up and she says, “yeah man, that’s just how popular we are! People want to buy bread from us so badly that we just keep running out. Come back in a few weeks and maybe we’ll have some bread for you.” You’re not a hero for not being able to provide your product and service when people want it, and more importantly, need it! You need gas when you need it! You need bread when you need it! You don’t appreciate the gas station taking such a self-congratulatory approach to not having what you need when you want it and need it. In fact, you get a bit resentful, and you vow to look for another place to give your money to. Over time, that gas station convenience store that was oh so convenient for you slowly starts to lose its most precious commodity. No, its customers aren’t necessarily its most precious commodity, it’s their trust and loyalty. Without that, they only have a commoditized product or service that their customers will happily go somewhere else to save a dime. Not only that, but drivers of gas-powered vehicles start to look for ways to mitigate that issue from happening in the future. What do they do over time? They start to buy electric vehicles. Over time, they start to think about the bread issue and find ways to mitigate that situation from limiting them in the future. What do they do? They have several options available to them: they can eat less bread, they can buy a bread maker, they can go somewhere else for their bread, or they can become their own distributor of bread to be better than the gas station. 

Appraisers are in high demand at the moment and that’s a great thing. We can raise our fees, book out weeks in advance, and finally start being paid what we’ve always felt we were worth and have probably been complaining about on social media forums for years without ever changing anything internally. Now, because of the current market conditions, you don’t have to change anything, and you can finally do what you’ve been hoping to do forever. You can stick it to those pesky lenders who give you so much hassle, those annoying Realtors who bug you at all hours of the day and night, those aggravating attorneys throwing money at you to handle that divorce or estate deal they’re working on. You’ve probably heard it before and from others, this won’t last. Every market and every industry changes and the real estate market, the real estate industry, mortgage industry, and the appraisal industries are going through changes. Some of those changes are being driven by the current market conditions, some of the changes are simply due. Some it is being driven by advancing technology, artificial intelligence capabilities, better data collection techniques, some of it being driven at the highest levels we may not agree with or even understand. But the bottom line is that its happening whether we like it or not. 

One of the first lessons you learn if you study contracts is the phrase, ‘time is of the essence’. This means that some obligation needs to be fulfilled within a specific time frame or the contract becomes null and void, or one party must comply with something in the contract and execute the agreement. Time is important in the real estate, the mortgage, and the appraisal industries because there are a lot of moving parts. There are interest rate locks that cost money and will expire, there are inspection deadlines written into contracts, there are deadlines for the actual contract, time is of the essence. Anything that threatens those timelines and deadlines is being scrutinized more deeply and is ripe for disruption. Adam Contos, the CEO of ReMax said that ‘disruption’ is really just the market telling you that you haven’t been taking care of business or your customers. I’m going to go out on a limb here and I’ll probably lose a few listeners with this statement, but I believe now that the AMC model may be one of the best things to happen to the appraisal industry. Don’t close your minds just yet friends, I’ll explain what I mean. For all of the negative aspects that having a middleman mucking up a system can cause, having little to no pressure on a system creates stagnation, complacency, and eventual decline. Although I think its taken a bit too long for the negatives of that system to make themselves obvious, without the pressures of faster turn time demands and lower fees being paid to appraisers, many of us probably wouldn’t have looked for ways to be more efficient, faster, and more profitable within the demands that system required. Without the pressures placed on the system as a whole appraisers would have no reason to grow and change how they go to market. 

Again, I’m not praising the AMC model as much as I’m thanking it for the pressure it caused for some of us to get better, and also look elsewhere for new markets. Without the pressure and changes in the system back in 08′-09′, we probably would not have started looking at venturing into the private side of the appraisal business. I probably wouldn’t have said, “I hate this and, if this is the way things are going to be done, I’m out!”, which caused me to change almost everything about our business, our culture, our mission, our values, and our messaging. I dare say that pressure from all of those changes forced us to evolve and be better. We had to be better for our clients, we had to find better clients, we had to go to market differently, we had to really question what it was we were doing and why we were doing it and it made us better. If you chose not to change anything or get better in any way, that’s on you my friend. Those changes that took place 12 or so years ago forced us to wake up to what business we were really in and what the needs of our clients really were. Prior to that, we thought we knew what those were, but we were only asking ourselves, we never actually asked our clients. And, do you know what our clients told us 12 years ago when we asked them? They said, “Blaine, time is of the essence! We need good appraisals done relatively quickly, and we need somebody we can get ahold of if there is an issue.” Those were the standards that our clients were looking for and they had their own definition of ‘good’. This is important to recognize and acknowledge because, quite often, businesses define good quality and good service without ever asking the customer or the client what their definition of good might be. When there is a large disparity between the way the customer defines good, and the way the business defines good, disruption is right around the corner. 

Time is of the essence friends, and If your model doesn’t allow you to produce and deliver your product or service in the time frame needed by those you serve, no amount of kicking, screaming, hand wringing, or proclaiming you’re the best will save you from python of progress. You will either figure out how to produce high quality appraisals in considerably less time than you are now, or you will slowly be squeezed out of the market. This wont necessarily happen overnight, but its happening already, and in every industry connected with real estate, lending, title, and appraisal. If you’re still the one accepting orders, researching those orders, entering those orders into your system, starting the file, inspecting the property, picking the comps, entering the data, writing the narrative, and doing all aspects of the report, you may want to consider revising your processes a bit at some point. I wont preach doom and gloom and call you a dinosaur, the market is already doing that. I’m just telling you there is a way for you to remain relevant in a rapidly evolving industry and a rapidly evolving world. It really just requires a mindset and paradigm shift in how you were taught to do things, and, subsequently, how you’ve likely been doing them for as long as you have. 

I’ll tell you a quick story I heard Guy Kawasaki give in one his many talks. Guy Kawasaki is one of the early apple employees responsible for the first Macintosh computers, he’s a successful venture capitalist, and an author. He was talking about progress and how the experts are almost always wrong. He used a brilliant example of how ice was first harvested from frozen lakes in the 1800s. He called it ice 1.0. Ice 2.0 was the advent of ice factories that began popping up to serve the growing customer base of people who wanted to keep their food and houses cool. Ice 3.0 was the advent of the refrigerator and portable freezer to bring ice making inside the homes of the customer and change the experience of the end user. What was interesting to me was not necessarily the evolution of ice making, it was what Kawasaki said about all three of those business models. He said the original lake ice harvesters never became the ice manufacturing businesses, and the ice manufacturers never became the refrigerator factories. The harvesters went extinct, along with the ice manufacturing facilities, when something new and better came along. More importantly, the curve of extinction tells the story. That curve followed a very predictable path, and that was in the direction of a better and more convenient end user experience. We tend to judge the experience and needs of our customers and clients based on the way we know how to do things. We define ourselves by what we already do instead of how they could be done. The process used by the vast majority of appraisers could be something we might call valuation 2.0. We’re certainly beyond 1.0, but maybe not quite to 3.0 yet, but its screaming at us from every corner. You WILL speed up or you won’t. What happens to those who can’t speed up the process we don’t know yet, but I have an idea. By the way, for those who think that I am advocating speed over quality, I’m not in any way suggesting that. In fact, Fannie Mae and Freddie Mac are going to be requiring even more support for adjustments, more clear commentary, and just overall superior data support than most have in reports now. So, let me rephrase, you WILL speed up and produce more well supported reports, or you won’t. The days of taking all day to write a residential appraisal report are ending friends and thank goodness they are! I’m not referring to complex assignments and ultra high-end reports, by the way, but the majority of lending appraisals being done by the majority of appraisers today. 

Time is of the essence friends! If you find yourself being overly self-congratulatory because you’re booked out 3 or 4 weeks, or worse, 6-8 weeks, enjoy this time.