5.1 Appraisal of Real Estate: The Master MAI Franchise
1. The Master MAI Franchise
Introduction to MAI
The designation MAI refers to Member Appraisal Institute. The link is to the requirements to become an MAI. It is conveyed by the American Institute of Real Estate Appraisers of the National Association of Realtors in the U.S. Interestingly, MAIs are also awarded to appraisors who practice outside of the U.S.
The standard industry joke is that MAI stands for "Made As Instructed." That refers to the habit of appraisors asking if you are the buyer (wanting a low valuation) or the seller (wanting a high one). That joke has circulated with a grimace in the U.S. real estate industry since the mortgage crisis, as a great many appraisals -- on the basis of which banks issue mortgages -- proved to be more fictitious than factual.
Nevertheless, the bar for the MAI has been steadily raised over the decades. The days when a reasonable GMAT* score could be submitted in lieu of a college degree are long past. However for MAIs to be more comfortable with comparison valuation than DCF calcuations (NPV and IRR) is still quite common. Appraisals entaling valuing multiple income streams will be required much more often in a few major cities than in the rest of the country.
The most lucrative market niche for appraisors are ones which must be frequently repeated, ideally annually. One generates an excellent first report. Afterwards you just update a couple of paragraphs and the Excel spreadsheet, a few hours work. However if that few hours work is for updating the appraisal of a hotel, office building or shopping center, the fee can be substantial. Organizations that have annual reporting requirements, such as pension funds, are therefore ideal clients for appraisors.
The business model is based on the experience requirement to become an MAI. You need at least three years of appraisal experience entailing a minimum of 4,500 hours. Having achieved the MAI, many leave whatever firm they were with to go out on their own. Rather than trying to keep newly anointed MAIs with golden chains, why not build their departure into a franchise system? A multiple hub system would be used. A hub franchisee in a large city would pursue appraisal work. He would also train future MAIs. When the person received the designation, he would also receive his own franchise with a protected territory.
To become partner at an accounting, law or premier consulting firm requires one to have a CPA, law degree, or MBA (or other graduate degree) - six or seven years of university. After that, reaching partnership often entails another seven year journey. Total elapsed time after one`s Bachelors is easily a decade. In contrast, one can earn an MAI after one`s Bachelors with three years of experience, during which one is earning money, not getting into debt because of exhorbitant graduate school fees.
Dealing with just one appraising firm for properities held all over the place should also be attractive to large clients such as pension funds. Furthermore real estate is a broad field. One might be able to scale the franchise with a pivot in the direction of real estate development.