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[Commercial Grade] Slicing Up The Pie Really Fast

Commercial Grade is a weekly post by John Cicero, MAI who provides commentary on issues affecting real estate appraisers, with specific focus on commercial valuation. Today John talks about how the compensation formula is, in all reality, based on speed. Thats why the post is a day late – he had to get a flurry of assignments out the door yesterday.

Disclosure: John is a partner of mine in our commercial real estate valuation concern Miller Cicero, LLC [1] and he is, when its not raining, one of the smartest guys I know. …Jonathan Miller

Imagine hospital interns getting paid a percentage of the fee for every patient they sawor associates in major law firms paid 40% of their gross billings. Take it a step further, your mail deliverer getting a cut of the postage for every house he delivers toengineers getting paid based on how quickly they can churn out new plans and designs.

The “fee split” compensation system has become the standard for commercial appraisers. Under this system, professional staff appraisers are paid a percentage of their gross billings, usually on a sliding scale.the higher the gross billings, the higher the compensation. So there is a built-in incentive to do it fastoften very fast. As a result, there are junior appraisers able to churn out appraisal reports who earn in the six figures; the irony is that the professional who is thorough, cautious and methodical in his research and analysis will put out a much better appraisal, and serve his clients interests far better, but earn only a fraction of what the appraiser that churns out reports earns.

According to Salary.com [2], the median salary plus bonus of the commercial real estate appraiser is $76,237, nationally. Though they call this a “salary” to my knowledge, the only appraisers (excluding trainees) paid on a salary basis work for financial institutions or accounting firms.

Salesman, of course, get paid on a commission basis, and partners and principals of professional practices will benefit from both their professional and entrepreneurial skills in running their practices. But I can think of no other “profession” in which junior or mid-level staff are paid essentially on a commission basis.

In other professions associates are paid based on their experience and knowledge, often with a merit bonus at year end. In the appraisal business, a 3-year associate could earn well in excess of the 20-year professional.

What’s wrong with this picture?

[More importantly, where’s my slice? -ed]