After seven years, my partner, Steve, and I had grown a small appraisal shop with five people to the largest regional appraisal company in New England, with seven offices and 75 employees. So why on earth would we have called all our clients to inform them that we had made a decision that would probably prevent them from giving us any more work and forcing us to close? The Story In 1982, I was laid off from my high school teaching job due to a reduction of the work force. I had enjoyed teaching and learned how to meaningfully engage the students as well as improve my organizing and presentation skills. While teaching during the day, I had earned a law degree at night, so I had lots of options. I was 35, married, and our daughter, Elizabeth was five. Catherine and I were still very much involved in the Magic Company. I developed four criteria for the job search – 1) time flexibility, 2) adequate money, 3) provide a useful service and 4) fit my interests and abilities. I explored a number of legal, banking, and insurance opportunities. None of them allowed for time flexibility and none piqued my interest. A friend of mine knew a realtor who had recently started a small real estate appraisal business and was looking for a few people. I did not really know what the job was about and I went for an interview. The realtor told me that I could do as many or as few appraisals as I wished (flexibility), and at least for now, earn $50 for each one, with no benefits, no guarantees, merely a possibility. His one-room office was a loft, located above a little fish store in Gloucester, MA. It is now a dental office - see photo. I decided to give it a try. He provided a little training and then I was on my own, learning something new on each appraisal. From the beginning, I loved the whole process - being out on my own, meeting the home-owners, going to town halls and local banks, figuring out the value and doing a simple report. In fact, especially in the nice weather, there was a certain feeling of “too good to be true” because I doubled my teacher’s salary within 1 ½ years. By 1985, the real estate market was sizzling and my friend Steve, another appraiser in the shop, wanted to take over and expand the company. He told me he would only do it if I did it with him. Just like that, we became partners in the venture. Over the next few years, I took the appraisal profession seriously, got designated by the Appraisal Institute, became a mentor to other appraisers in the area, had a column in the New England appraisal journals, and became a teacher and regular speaker for the lending community. Between 1985-1987, Steve and I opened up six additional offices throughout the New England states. We figured out how to connect the offices electronically (this was before computers really functioned well). We also designed a comprehensive training program and created a respectable company with employees, vacations, benefits and so on. We were very proud of what we had accomplished and looked forward to continuing our growth. What we did not take into account was the old adage, “what goes up, must come down.” We had only seen an increasing market throughout the 1980s and really had no practical idea of what happens when that stops and reverses. But, of course, that is the cycle. By 1989, the residential real estate market started grinding to a halt and house values began to decline. This was announced in almost every newspaper, and we saw it directly reflected on appraisals. Houses that were selling for $200,000 a year ago were now selling for $180,000 and there was no sense of leveling off. One of the important criteria that lenders use to determine how much they will lend is the value of the house. If the value is declining, the lender will take that into account and the loan will be smaller. In most cases, this will not provide enough money for the homeowner and the deal will fall apart. It is the appraiser’s job to determine if values are stable, increasing or decreasing. Our company, being the largest in New England, had begun to see declines in most areas. Our appraisers had not seen declining values in many years and needed instruction about what to do. As I mentioned, I was one of the appraisal instructors in the area and had taught appraisers how to support their determination of declining values. Within short order, it was crystal clear that we would be indicating declining values on most of our appraisals. Steve and I called our lenders, mostly credit unions and community banks. We told them what we were going to do and why. Although the lenders were sympathetic and understanding, they indicated we would probably not be getting much more work from them. They told us that the other appraisers they work with are not doing this. Steve and I were very clear-eyed that our decision would probably lead to the end of our company but we felt it was the right thing to do. Within one week, we lost ½ of our work. Which brings us full circle to my original question. On Friday afternoons, it was Steve’s and my custom to sit together in his office overlooking the Gloucester harbor, go over the prior week and look forward to what was coming. Somehow, in spite of our disappointment, we had both made internal peace with our decision. Steve kept some brandy for both happy and sad occasions and this was certainly a good time for a drink. We both agreed that the past seven years, especially the last five were a great ride for both of us and many people in our company. We had no regrets whatsoever even though neither of us had a “plan B”. I drove home and told Catherine the final details and she took it in stride. Catherine had a job. We had started our marriage with little money and we both knew we would work through the challenge together. On Monday morning I drove to work wondering how to proceed. To my complete surprise, shock really, our fax machine (a cool, new piece of technology at that time) had a list of 50 addresses. The letter was from a large New York bank with a simple note from the Senior Vice-President of REO (Real Estate Owned by the Bank) to call him which we did. He told us that they had thousands of foreclosures throughout New England that would need appraisals. He had heard about us because we refused to work for their retail / origination division known for their pressure for pushing unsupported values. All of those people had been fired. Within a few days and weeks, many of our other lenders called us. Our contacts who had cut us off from origination work were now in the REO division and wanted to use us. So it came to pass that for the next three years 70% of our work was REO and foreclosures. During this time, I became the appraisal representative in the Northeast for Freddie Mac and met monthly, either in New York or Washington with a group of industry leaders to strategize and help Freddie Mac with its gigantic foreclosure portfolio. Our perspective enlarged enormously. Sometimes a hard decision gets you to unexpected places.
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David FeldmanDog walker, Dog Mediator, Father, Husband, Categories |