WHERE IS THIS MARKET HEADED?

If you are one of the early listeners of this show, you’ll remember an episode format we used to do called ‘questions from the listeners’, or ‘letters from the mailbag’ where I would simply answer questions sent to me via email or Facebook. Sometimes I would take a question from a listener and turn that into the main topic for a whole show. It’s been many years since we’ve done one of those episodes, but not because we don’t get questions anymore, but simply because I had a long list of topics to build shows around, so I have just been answering all of those questions quietly as they come in. 

But, good news, I was reminded by a listener last week about those shows and asked why we don’t do them any longer and I didn’t have a great answer beyond what I just mentioned. So, hang on to your britches, we’re dipping into the mailbag to answer some of the most pressing questions about the market, the industry, the business side of things and maybe a few others.

Let’s not waste any more time friends, let’s get right into the first question, which is from Brad. Brad asked, “Blaine, what do you think will happen with interest rates in the coming year?” Now, to be clear, we all know why Brad would ask somebody like me that question and it’s because I am a financial genius with a thumb on the pulse of everything going on at all times and the private cell phone number of the Secretary of the Treasury.

Sorry Brad, I really appreciate your confidence in my abilities to foretell what might happen with those kinds of things, but the reality is much simpler and wholly unimpressive. I have made so many bad calls when it comes to that kind of thing that, if you knew me, you’d know better than to ask me anything about what might happen. What I have learned a bit from my mistakes of the past is to never try to guess what the markets, the Fed, the government, or anyone else will do. Forecasting is definitely part art, part science, but I am far from good at either of those things when it comes to piecing together a reasonable guess at what might occur.

I’ve talked on previous shows about forecasting and how to get better at it, but it’s like almost everything else in that it’s a practice. You learn to look at the past and what happened in a particular area, and then follow step by step over time what kinds of things had an effect on that thing. That gives you a reasonable idea of what might affect that thing in the future under similar circumstances.

However, here’s the thing, rarely are the circumstances the same as before. People all over are clamoring about how today is eerily similar to 2008, except that the circumstances are almost completely different than 2008. We’ve since had trillions of dollars pumped into the economy, we’ve had a worldwide pandemic with thousands of businesses shutting down for good, we’ve had people locked down for a couple years, we’ve had commercial mortgage backed securities starting to implode, we have almost unprecedented low inventory of homes for sale, we have an unprecedented amount of people with loan interest rates in the 3% range and never planning on leaving their homes, we’ve had an unprecedented number of bank failures, we’ve had 20+ years of continuous wars on multiple fronts with two new proxy wars in Ukraine and now Israel, we’ve had one of the most contentious political environments in modern times with Trump in the news continuously for almost 8 years, the January 6^th incident, school shootings and…how much further would you like me to go on?

The point is that today is completely different than it was in 2008, 2014, 2018, 2020, and last week. The world is changing rapidly on a variety of fronts and interest rates are just one of the many factors playing into the current global situation. Yes, as appraisers, agents, and lenders we’d love for lower interest rates to make everything all better, but the reality is that they won’t do that.

Lower interest rates will most definitely motivate spending and investment in a variety of other areas globally, but if your business is severely hurting today because of Fed policy or high interest rates, your business has bigger problems. The goal should not be to hope for lower interest rates, the goal should be to build a business that can adequately sustain you and your family at the level you desire regardless of interest rates and Fed policy. If your business is severely hurting today, it might just be the best thing that has happened to you in a while when you look back on this time years later. If the current economic climate is causing you to make deep cuts and big changes, bless them.

That’s the long tirade on interest rates even though that’s not exactly what Brad asked. He asked what I thought might happen to rates next year and I gave him the coaching answer. Interest rates are symptom of a bigger issue within your business. They are, essentially, what we might call a ‘single point of failure’ in your business and that’s a problem. Again, if the health of your business is primarily based on one thing, in this case interest rates staying low, your business has cancer. You’re a slave to somebody else’s rules and you serve at the whim of an uncaring master.

However, out of respect to Brad and his question, I have no idea what interest rates will do next year as I’ve seen compelling arguments for 4-5% interest rates next year, as well as 10% plus. As I’ve mentioned many times on this show, what many of you are going through in your businesses right now, I went through in 2009-2010. Looking back, it was definitely one of the best things that could’ve happened to me and my appraisal business. We changed almost everything about it, and I was considerably happier running a different kind of business. Those changes were also the catalyst for me to start several other businesses that I probably wouldn’t have started if everything stayed the same. I know that doesn’t help some of you feel better, but it’s a message about being adaptable, flexible, forward thinking, and always assessing what the opportunities and threats are in your life and business. Lowered interest rates next year will certainly help most of our businesses in some area of them, but they will also potentially accelerate other problems brewing in the global economy. So, be careful what you wish for.

The next question comes from Anna and it’s a simple question I also get all the time. Anna asked this: “Blaine, where do you see the appraisal industry going?” I’m quite sure that all of you listening that are appraisers have had this question asked of you, and you’ve probably also asked it of others. It’s a common question to ask in any business, but especially in a business and industry that is changing pretty rapidly, which, by the way, includes a lot of industries right now.

I’m also quite sure a fair amount of you have an opinion on this topic. With that in mind, my opinion is as good as anyone else’s on this topic. There are lots of people listening to this show that are smarter than me in a bunch of areas and might have better industry connections and insight into this topic. However, as one of my recent podcasts went into some depth on, the art and science of forecasting is one that is dependent on a variety of inputs and your interpretation of what has happened in the past, what is happening now, what kinds of things affect other things, what the intentions of those in power may be, how well you keep your biases and ego in check, how much information you’re willing to take in on a topic, how intellectually honest you’re willing to be, and how wide or narrow your cone of uncertainty is.

If you haven’t listened to that episode yet, go back and listen to episode 23 called, ‘What’s Your Prediction?’, where I talk about the 6 skills or traits of a good forecaster. One of those traits is a willingness and flexibility around changing your forecast based on new information, even if that information runs counter to what you already believe or want to believe. That’s the intellectual integrity part of the ability to accurately forecast.

By the way, I’ve answered this question a lot over the past 5 or 6 years on this show, so if you go back and listen to some of those episodes from years ago, I think you’ll find that I’ve been pretty consistent, not to mention correct on my forecasts. How can I be correct on my predictions about the industry for the last 5 or 6 years? Because they’re not predictions, they’re forecasts. The primary difference between a prediction and a forecast is bias. A prediction is subjective and biased based on what somebody feels might happen in the future. A forecast is based on researching lots of data points, putting your ego and subjectivity aside in favor of what the data is saying, and being willing to change your mind with new information and data.

Now that we’ve got that out of the way, let’s talk about what I see as far as a general forecast of the industry is concerned. Based quite simply on what we see going on all around us in the way of technological advancements, artificial intelligence, machine learning, data aggregation, the ability for AI to accurately determine what a single image contains, the mathematical computation ability growing exponentially every year, and 15 other things that affect what we all do and how we do it, I think the appraisal industry will continue to bifurcate in a very natural way.

What do I mean when I say bifurcate in a natural way? I mean that all of those advancements are forcing the participants in this industry into 2 camps, which have always existed, by the way. Those two camps are generalist and specialist. Within those two camps there are alse deeper levels of generalists and specialists. Sounds confusing, right? It’s not. As time marches on, you will either be a generalist that sits and waits for a commoditized order to come your way with which you will do one of two things: you’ll either be the data collector or the analyst, or you’ll be more of a specialist that also waits for a somewhat commoditized order to come your way, but it’s considered to be more complex, like farm appraisals, right of way, partial interests, co-ops, and so on. (note: talking only about the residential side of the appraisal industry)

Now, within each of those categories there will be generalists and specialists. A generalist within the generalist category is all of you who only have AMC work and are at the complete whim of the market, the AMC, the scorecard, the interest rates, and supply and demand. That’s a generalist’s generalist. Somebody who is a basic service provider with no special skills doing work primarily for nameless, faceless middlemen. This, by the way, is the most dangerous place to be in any industry. A generalist’s generalist is the most disposable and unremarkable provider of products and services in any industry. You can be easily replaced by another generalist at a moment’s notice and with no interruption in service to the customer.

A specialist within the generalist category is somebody who is regarded in their market as the go-to for answers, good quality product and service, great problem-solving skills, great communication and relationship skills, good sales skills, and maybe they also have some specialized appraisal knowledge and skills. However, I want to make the point that having those specialized appraisal skills (like agricultural, right of way, high-end, etc.) in both the generalist and specialist categories does not guarantee that you’ll have a thriving business. Unless you’re in a market where you’re the only one who does that thing, just having a special skill or advanced designations and degrees will not automatically put you above the person with all of the other skills and relationships.

I want to also make a point about the relationship thing. As the world gets more advanced technologically, the more distant we get from each other. This is one of the massive ironies of the world we live in today. Technology is said to make the world smaller because we can talk to friends and family members anytime and anywhere in the world at a moment’s notice. We can see almost real time video feeds of distant parts of the planet and learn about places that we would’ve had to read about in an encyclopedia just a few decades ago. We now have social media, which allows us to connect with all those same people in real time and see all the best moments of their lives.

And that’s exactly my point, technology and social media aren’t always bringing us closer together, they’re fooling us into believing we’re connecting with people when, in fact, we’re replacing belly to belly interactions with an electronic device. Social media is one of the most anti-social inventions ever in history. Maximum security prisons have more social interaction than social media does.

We’re built to interact with other humans in a personal and physical way. Our eyes, ears, hearts, language, and emotional technology is designed to interact with other lifeforms where we can see them with our eyes, hear them with our ears, hug them with our arms, shake their hands with our hands, and feel their energy and spirit by being in the same room with them. When technology makes us more separate, more distant, and more removed from each other, the ability to build real relationships becomes a strategic differentiator and a real competitive advantage. A specialist is the one who can build relationships, is willing to build them, sees the real value in building them, and then puts in the work to nurture and maintain them. And I can tell you from having done it in several different industries, when you become that kind of specialist, you’re almost automatically perceived as a specialist in other areas as well.

It’s almost as if becoming a specialist in the generalist category, meaning you don’t really have a particular specialty beyond being a great communicator, friendly, social, good networker, problem solver, etcetera, gives you quicker access to becoming a true specialist in the sense of choosing what area you want to specialize in. Instead of waiting for somebody to reach out to you because you’re the farm appraisal specialist, you get to become a specialist in relationship building first and then announce to your network what you’re primarily recognized and paid well for.

Then, of course, you have the true specialist category whereby you have some specialized knowledge or experience in an area that the generalist does not have. You specialize in agricultural properties, high-end properties, non-lender appraisals, right of way, etcetera. The point I want to emphasize in all of this is that the generalists in any industry will always be the most expendable and replaceable.

So, ask yourself, am I a generalist or a specialist in some way? And, if I’m a specialist in some area, does the world know that? If not, why not? Your job should always be two-fold: to scale your skillset, which means to always be adding to your skillset; and to be letting the world know on a regular basis that you’re the go-to in that area. 

Back to Anna’s question about where I see the industry going. Where we can be 100% sure the industry is not going is back to the days of old. If you find yourself holding out hope that someday we’ll go back to producing a 15-page appraisal report with only 3 comps, minimal commentary, polaroid photos pasted into the report, and scratch off arrows on a photocopied map, keep hoping. Not only will it never go back to those days, with every new advancement in technology, in data collection, its aggregation and interpretation, the industry moves forward in some small or big way. If you’re not keeping up, despite how you may feel about it, you’re falling behind.

Do I think the appraisal industry is going to be around 10 years from now? Yes, I do. Will it be operating the same way it is now? Of course not! It’s been changing for decades, and the speed of that change is increasing. However, knowing what I know about human psychology and the innate needs we all have as human beings, I am very confident that, even 10 years from now, there will still be a place for people who know how to build relationships, how to communicate better than most, how to serve at a very high level, and, of course, know how to analyze a market.

Lending institutions will be changed drastically in that time, and we can see that happening right now. Banks are failing at an unprecedented rate, and even more are closing branches quite rapidly. We will be dealing in a primarily cashless world in the coming years and almost everything will be digital. However, there will still be people who want to deal with a human being when it comes to the value of their assets. Does that mean banks will no longer need human appraisers? No, it just means they will need far fewer appraisers to do things in the same way they’re being done today. If you want to be one of the one’s still around in the coming years you’ll have to decide what level of education you aspire to, what kinds of specialized skills you desire to acquire, how willing you are to start serving the non-lender market of the appraisal business, and what other sets of skills you’re willing to acquire that can be utilized in other areas and on other businesses.

What it does mean is that if you want things to stay the same as they were 2, 5, or 10 years ago, you might want to start preparing now for a career change because it just isn’t going to happen. If you’re one of the people bitching and complaining on social media about fees, about AMCs, about Fannie and Freddie, about the interest rates, and everything else under the sun, you too may want to start preparing your exit. Wasting your time and attention on things outside of your control is wasting your most precious resources. Invest that time into scaling your skillset and changing your mindset so that you can stop being upset.

Of course, we’ve had lots of other questions asked that we don’t have time to get into in this show, but I’ll give you a sneak peek into some of the other questions I’ll be answering in future episodes. James asked, “what can I do to build my business?”, which I answer in these episodes almost every week, so I’m going to recommend to anyone waiting for that answer to simply go back and binge listen to all the past episodes and that question will be answered for you. Of course, you can also invest in yourself and join the Appraiser Increase Academy, which is free for the first 30 days with no obligation to stay after that, by going to www.coachblaine.com/freemonth to check it out.

Beyond that, you can also reach out to me anytime for a free coaching call and I’d be happy to give you my input on what you should be doing to survive and thrive in your appraisal business, your real estate business, your mortgage business, your HVAC business, your sales business, it doesn’t matter, friends! I coach the person, not necessarily just the industry, and I’ve built business in 5 different industries based almost solely on principles, not tactics. Principles are timeless and cross all boundaries. Tactics are things you utilize to accomplish certain goals. Principles work regardless of the environment; tactics are environment dependent. Principles are things almost everyone inherently understands; tactics are things used on people to get something done.

Build a business based on principles and the day to day, month to month fluctuations won’t matter. Build your business based on tactics and the tactics will have to change with the market, and often rapidly.

Until next week, I’m out…