By Meghan Hall
The appraisal industry is one of the oldest in the United States when evaluated by age of practitioner. Dominated by Excel and manual Word spreadsheets, industry has seen very little innovation. The Registry recently connected with Lucas Rotter, CEO and co-founder of Valcre, a cloud-based platform designed specifically for commercial real estate appraisers. Valcre is striving to change the way the CRE appraisal industry functions, and has seen immense success over the past several years as its platform has grown.
Appraisal is one of the oldest industries in the country, with a long history. What inspired you to create Valcre, a software platform specifically geared toward CRE appraisals?
We launched Valcre in 2016, but our founding story and inspiration with CRE appraisal technology really goes back more than a decade.
I joined the industry in 2007 with Colliers, and I spent several years appraising retail centers, self-storage facilities, hotels and other properties in the Portland, Oregon market. I was a millennial learning appraisal from the ground up, and it didn’t take me too long to realize that, by incorporating technology into the process, I could help my team produce appraisals significantly faster.
I started building tech for my team, and it immediately became clear that it worked. Quickly, we became one of the most productive appraisal teams in the company. When executive leadership realized this, they pulled me out of my appraisal role and had me build out the tech further to make the entire national appraisal group more efficient.
After several years in that position with Colliers, I recognized both the need and the opportunity to increase productivity for the entire CRE appraisal industry through technology solutions. I made the entrepreneurial jump in 2016, when I co-founded Valcre with Kris Owens, Grant Norling and Joe Creech.
Can you explain how Valcre as a platform operates?
Valcre is an end-to-end platform for commercial appraisal firms. For most of our users, the appraisal process begins by creating a job within Valcre and ends with the generation of the formal report that they present to their clients. Everything in between — from researching comps to tracking jobs to creating invoices — happens within the Valcre ecosystem.
While it has many elements, it is easiest to think of Valcre at its core as a robust database where all of a firm’s jobs, comparables, and clients are stored in a centralized cloud location. The technology integrates with external data sources like Argus, Bureau of Labor Statistics, The Census Bureau, demographics data sources, and RealPage, seamlessly pulling that external data into our clients’ workflow.
As a centralized database, Valcre enables teams to work collaboratively, and it also gives managers an easy birds-eye view of their teams’ workload. One of the most important components is the powerful search functionality — including a map-based geographical search — which enables appraisers to easily find property comps from any job that anyone in the firm has ever worked on. Finally, Valcre integrates directly with Word and Excel, enabling appraisers to easily produce their reports with customizable templates.
What are some of the benefits to utilizing a platform such as Valcre, as opposed to traditional appraisal processes and measures?
The biggest benefit to using Valcre is time.
In theory, an appraiser’s job is to determine the value of a property. In practice, however, a lot of time gets spent on manual tasks like data entry. To a certain extent, this is unavoidable. But very often, files are lost within folders buried deep on company servers and the same data entry must be done twice. Having a centralized database like Valcre gives users a single point of entry and drastically reduces non-value-add work. The other features — APIs that integrate with critical data and customized templates — also contribute significantly to the time savings Valcre provides.
The old saying goes that “time is money,” and that is even truer and more consequential in the appraisal industry. Our clients are typically able to take on 1-2 extra appraisals each month because of the time they save using our software, so Valcre translates directly into greater income potential. As appraisal fees have not changed substantially over the years, the increased efficiency by using Valcre is critical.
What is your favorite feature of Valcre? Why?
Our clients always say they couldn’t live without the core database, which allows them to easily search for prior jobs and comparable data, whether by map, by property characteristics, etc. Accessing all your jobs from the past year or two seems like it should be easy, but before Valcre it was extremely challenging.
There is an emerging trend amongst banks who are pushing to raise the minimum threshold for CRE transactions that require an appraisal prior to closing? Why is this significant?
Appraisers exist because they provide an important service to society: they give objective analysis of the value of real estate while maintaining the public trust. Appraisers may work for various property stakeholders, but nowhere is their role more important than in the lending sphere.
When a bank is funding a real estate-backed loan, they can only provide a certain amount of leverage determined by targeted loan-to-value ratios. To avoid any sort of fraud or incorrect valuation — such as over-valuing on a building and lending too much — banks must retain an independent appraisal firm to provide an unbiased opinion of value. Therefore, the appraisal industry fills a critically important role in ensuring the lending industry is making sound loans. Removing the appraisal requirement would increase the likelihood of irresponsible loans, and would certainly be bad for the bank. But, more importantly, if it happened on a large enough scale, it could impact negatively across the capital markets.
In certain regions, the demand for appraisal work exceeds the bandwidth of local appraisers, and the amount of time it takes to get a property appraised has increased. Lenders are frustrated, which is why some are pushing to raise the de minimis threshold for which an appraisal is required. But while this frustration is understandable, raising the threshold would, by definition, introduce even greater risk to the market.
How is Valcre positioned as situations like this arise?
The impetus behind raising the de minimis threshold is the bandwidth of appraisers. Valcre helps appraisers work more efficiently and create high-quality, consistent product in a short turnaround time. This enables appraisers to complete more jobs, solving the problem without introducing the market risk associated with raising the threshold.
Valcre started on its own with no formal VC funding. What strategies has the firm employed to allow it to simultaneously earn a profit and scale?
We have been fortunate enough to found and grow Valcre over the past five years without venture funding, and one of the things we attribute this to is our deep knowledge of the appraisal space.
While all technology companies differ, it is common for entrepreneurs to identify a problem and then raise capital to come up with the solution. Because of our background in the space and experience building valuation technology, we had a firm understanding of what commercial real estate appraisers needed and wanted in a valuation platform.
So, instead of making mistakes while trying to figure out how to solve the problem, we’ve been able to bootstrap and invest every dollar we can back into the business. Over the past year, we’ve tripled our staff from about 10 employees to more than 30, and most of this success is attributable to how well we understand the needs of appraisers.
The proptech industry, as you may know, can be extremely competitive. What steps is Valcre taking to maintain its competitive edge moving forward?
In 2007, Apple introduced the iPhone, which had capabilities that far outstripped other smartphones. But competition in consumer tech is fierce, and if they had stopped innovating there, the iPhone would be archaic. In any industry with competition, you need to constantly be looking for ways to improve and add value to the marketplace – that is exactly the approach we embody.
My thinking is that it’s essential for us to listen to customer feedback, because if one client asks us for a certain feature, there are likely five more that didn’t mention it but would also benefit from it. We are obsessive about improving Valcre’s functionality; we’re always working on the next iteration, and typically make updates several times a month. For example, we released our mobile app a few months ago, bringing much of the functionality of Valcre to appraisers even when they’re on the go, and enabling them to inspect properties and upload photos directly from their mobile phones.
Although it’s too soon to provide details, we’re also working on several really exciting tech integrations, which would cut down further on some of the non-value-add work that our clients do.
What are Valcre’s plans for expansion and growth? Why?
Right now, Valcre supports appraisals for 10 property types (multifamily, retail, office, self-storage and more), but our goal is to eventually support every type of commercial property. In 2021, we are hoping to roll out functionality for senior housing and hospitality.
We also think that aspects of Valcre can have significant value to real estate professionals beyond the appraisal space. We have several users who are appraisers and investment sales brokers, and some of them have been utilizing the platform for their work on the brokerage side of the business, as well. Every broker has to come up with a listing price for each property, and the valuation process they go through is fairly similar to what an appraiser does. We think there is substantial growth potential for Valcre within other segments of the commercial real estate industry.
2020 was a tough year for the commercial real estate industry. How did last year impact the appraisals industry and process, and how do you see 2021 shaping up for the industry? Why?
Last year was very challenging for the commercial real estate industry, but it wasn’t that bad for appraisers. Even when the market is headed south, appraisers are typically busy, except for when market activity totally stops.
There was a pause in appraisal work at the beginning of the pandemic, but once tenants began missing rents and landlords started missing mortgage payments, many properties were moved to special servicing. This created a great deal of appraisal work from that segment of the market.
For most of our clients, this year started off busier than ever. January is typically a slow month, but I know that many of our clients had more work than they could handle, and we expect this to play out for much of the year ahead.
Is there anything else you would like to add or mention?
This was obviously not the goal when we built the platform five years ago, but Valcre has proved increasingly valuable to some of our clients during the pandemic. The argument in favor of a collaborative cloud-based database was strong in 2018 and 2019 when the world still had a sense of normalcy. In 2020 and 2021, when many people are working remotely, it is even more imperative.