Last week, I discussed fee and turn-time management in running an appraisal business (“Business Management: Part 1 Fee and Turn-Time Management”). Today, I wanted to further explore how to actively manage our businesses: through managing our clients.
This summer at Valuation Expo, one of the last topics related to “scope creep”. Scope creep is the tendency for lenders and AMCs to continually increase requirements, correction requests, stips and additional information requests in appraisal reports. First, let’s look at what scope creep is not. Scope creep is not a client’s expectation that your appraisal meet USPAP requirements. Scope creep – for purposes of this discussion – is not a client’s expectation that you meet requirements that you agreed to in their engagement letter (although, yes, scope creep can result from longer and longer requirements lists). Scope creep is not a client’s expectation that you correct factual errors, provide additional detail to support your value opinion, or consider additional appropriate information such as additional sales (but, wow, I could spent a lot of time on this one).
The biggest step to battling what you perceive to be scope creep is to first be honest with yourself: are you really writing a good report? Are you reading – and then fulfilling – the engagement letter, to the extent it is possible? Is just one client bombarding you with stips, or are most (or all) of your clients regularly sending you stips? Have you come to expect that you’ll get stips on each order you turn in, no matter who the client is? Sometimes these types of requests from lenders and AMCs aren’t scope creep at all, but rather feedback indicating that something necessary is lacking in a report.
“It’s Not Me, It’s You”
After you evaluate the quality of your own reports, perhaps you need to take a close look at your clients, by tracking the revision requests. If you work for several lending clients, but only one of them is regularly returning reports to you for revisions, we can assume they have higher expectations than other clients who are also engaging appraisers for the same intended use. These “higher expectations” might be scope creep and aren’t necessarily “bad” or “wrong”… but may be costing you extra time. “How high are the ceilings”, “Remove photo with cat”, “Add a photo showing the house number”, “Explain why these three sales were not included”, “Include photos of light fixtures”, “Change photo label to read Kitchen” and the list goes on for “requirements” that were never outlined in the engagement letter and are not expected by most other similar clients. Even quick or trivial requests can add up over time – and how many of us have extra time?
So, why do we continue working for these clients? I’m not at all suggesting that we “fire” clients the moment they ask for reasonable clarifications, point out an honest error or typo, etc.. But, just like some of us never ask for the higher fee or the adequate turn-time, some of us also never bother to seek out the quality non-abusive clients. Have we taken steps to market ourselves to local banks, attorneys, accountants, agents, and the non-predatory AMCs and national banks? What are our criteria for an Approved Client list?
Let’s say a plumber fixes a sink, and a week later the homeowner calls to say he needs to come back and fix the washer for no additional charge (even though the owner didn’t initially ask for this and it isn’t typically part of a fix-the-sink job). But the plumber returns to fix the washer anyway. The next week, the owner needs the water heater fixed, again for free. At some point, the plumber will learn that it’s not worth accepting work from this particular client, and he’ll look to get other clients. Well, I know we’re not plumbers, but business is business. And if we don’t manage our clients – by looking for the best clients who want good quality appraisal work – then, we’re not truly managing our businesses.