August 7, 2014

Volume 10 - Newsletter 16

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Pork Bellies

Jeff Hicks, MAI
President

The Dohring Group
RealWired!

I get nauseous when I hear "commodity" in the same breath as commercial real estate appraising. Commoditization is the vomit and Dodd-Frank is the Jägermeister. The word is defined as a good or service whose wide availability typically leads to smaller profit margins. Also defined as an economic good as a mass-produced unspecialized product.

I don't think our appraisal product is fully commoditized, though there is certainly regulatory momentum and market pressure leading us down that path. However, there's no reason to make your deodorant work hard. Many other industries have similar pressure. We are not unique. Be grateful for your appraisal career, but awake to its ongoing changes.

Usually there is no easy solution when you find your product or service in the commodity bucket, where price is the only determinant. Like Wal-Mart, there can only be one price leader, the lowball appraiser in town. The bottom of the bucket is detrimental to your bottom line and our industry in general long-term. So what's the solution?

We are shifting to an "experience economy" where the experience is the dominate economic offering. In other words, what makes your appraisal firm any different than other appraisers in your market? I'm talking about what your customers think of you, not the other way around. Often times it has little to do with your appraiser expertise and experience, and more often your ability to communicate your value.

Author Joseph Pine says, it's important to provide authenticity. A coffee bean is a commodity, as Starbucks is to an experience. The authenticity behind the Starbucks brand allows them to charge a lot for what actually is just a commodity wrapped in great employees, good products and visually appealing presentation. They sell an emotion, a feeling and ultimately an experience.

Writer Stephen Anderson focuses on the user experience with his six levels of quality of experience which I've tweaked for commercial appraisers:

Functional - gets the job done, meets minimum USPAP requirements.
Reliable - little issues with the reports most of the time, does what is expected.
Usable - the appraisals are checkbox acceptable.
Convenient - Good reports, hardly any issues, returns most phone calls and emails.
Pleasurable -Good reports, delivered on time, issues addressed as needed.
Meaningful - Positive attitude and responsive corporate culture, provides reports that address client's specific needs, communication throughout the process, consistently delivers on time or early, issues if any are addressed very quickly with excellent customer service creating a high level of trust that resonates on a personal level.

So how does one provide an experience and satisfy the desire for authenticity for an appraisal firm? One can stay above the commodity fray with some old-school service with much improved communication. A few ideas come to mind:

Ask your customers how you rate on the above 1 to 6 scale. If the rating is less than you hoped for, then ask questions on what specifically you can do to improve your appraisal product and service. This involves talking to them.
Leverage technology to provide timely bidding, creation and exceptional delivery of your appraisal product.
Be a public speaker and expert source, the "go to" person in your market for valuation topics.
Present informative "lunch and learn" meetings for your customers. Bring in other professionals to add depth to the discussion such as environmental and construction professionals.
Communicate your strengths - generalist in a geographical area, specialist in a particular property type(s), expert witness, tax appeal, etc.
Constantly improve the "readability" of your appraisals, understand what your reader wants, maybe more of "this" and less of "that."

It's up to you to provide reasons for your customers to give you money. Try this, have a friend be an incognito "secret shopper" and order an appraisal from your firm. How will they be treated from bid, inspection, information gathering, report delivery and a follow-up call from the faux client asking post-valuation questions? What will be their experience? Better make it an exceptional one unless you want to be like soybeans, live cattle or worse, pork bellies.

If you would like to join a discussion about this topic or Appraisal Best Practices, go to our blog or contact Jeff Hicks.

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