Kevin Swenson·August 23, 2022

Rolling Up Real Estate Appraisal Firms

Kevin Swenson is a career real estate and appraisal industry insider who acquired a ~$3m revenue residential/commercial appraisal firm in Utah for $2.5m (roughly 4x SDE) in March 2022, using maximum SBA leverage with a 5% equity injection and layered seller notes. His roll-up thesis is built on the profound fragmentation of the appraisal industry — roughly 40,000 firms, mostly solo operators drowning in back-office work — and his firsthand experience managing thousands of appraisal orders and seeing chronic quality and service failures. By acquiring a platform company and stripping administrative burden from appraisers so they can focus purely on analysis, he believes he can double throughput, raise quality, and attract the best appraisers. Recording just three months post-close, Kevin is navigating a severe macro headwind: the Fed's aggressive 2022 rate hikes cut residential transaction volume ~50%, though his 50/50 commercial/residential mix has cushioned the blow. He is now pivoting to also acquire an appraisal management company (AMC) to generate captive order flow for his appraisal firm — a vertical integration play he had always envisioned but is now pulling forward. Kevin is a strong advocate for the 'sure thing' principle in ETA: buying in an industry where deep experience eliminates search friction, accelerates diligence, and makes sellers pick up the phone.

Deal facts

purchase price: $2.5m
multiple: ~4x SDE (high end of 2-4x range)
sde ebitda: SDE ~$625-650k (implied)
revenue: just under $3m
financing structure: SBA 7(a) ~75% + 15% seller note (1-yr standby, 5-yr balloon, 10-yr amortization) + 5% seller note (10-yr standby, full standby) = ~5% equity down; DSCR ~1.75x
notes: 50% residential / 50% commercial mix. Closed March 28, 2022. Business sourced via broker. Two-seller founding team described as 'MBA-quality business owners first, appraisers second.' Kevin also exploring a separate joint-venture/option-to-purchase structure with other sellers: $3m option price over 3-5 years, no upfront payment.

Why this business

Kevin grew up in real estate and spent his career managing high volumes of appraisal orders, experiencing chronic pain points around service quality, turn times, and appraiser accountability. He saw that most appraisal firms are one-person shops doing all their own back-office work, which limits volume and quality. His thesis was to acquire a platform firm and strip out the administrative burden so appraisers can focus purely on analysis — increasing throughput, quality, and appraiser satisfaction. He believed the industry would consolidate and wanted to be early. He also cited the 'sure thing' principle: staying in an industry where you already speak the language, know the players, and can move faster in diligence and seller conversations.

What's working

Deep industry expertise reduced friction in seller outreach — 8 conversations from 30 contacts, with at least one seller explicitly citing Kevin's experience as why they took his call.
50/50 residential/commercial revenue mix provided meaningful downside protection when the Fed's rapid rate hikes cut residential transaction volume ~50% in 2022.
The platform business had high-quality, business-minded founders ('MBA quality'), which gave Kevin confidence in the quality of what he was acquiring.
Down market is creating opportunities to recruit appraisers who are hungry for volume, strengthening the talent pipeline.
Vertical integration thesis: owning or controlling an appraisal management company (AMC) alongside the appraisal firm creates a captive order flow and margin arbitrage — AMC margins ~20% vs. appraisal firm ~10% as a starting point.
DSCR of ~1.75x provided comfortable debt service cushion even as revenues declined.

What's hard

Macro headwinds: Fed raised rates at an unprecedented pace, causing residential transaction volume to fall ~50%, directly impacting appraisal order flow.
Valuation conversations with acquisition targets became difficult in a down market — unclear what the normalized SDE is when revenue is declining.
Maxed SBA capacity after first acquisition, limiting ability to do additional SBA-financed deals without equity or alternative capital.
The industry's fragmentation (40,000 appraisal firms, mostly one-person shops) makes roll-up execution operationally intensive.
Appraisers historically resist accountability practices (e.g., providing status updates), creating cultural friction when trying to professionalize the business.
Recruiting appraisers in a down market means more supply but less order volume to retain them — a chicken-and-egg problem.
Acquiring an appraisal management company requires meaningfully larger capital (smallest AMCs are $5-10m+ in revenue; Kevin's target is ~$25m revenue), requiring outside equity.

Notable quotes

I look at a lot of acquirers that are going away from their experience and I just think that you can lean into your network that can be super powerful if you stay in a space that you know. There's lots of surprises — it doesn't matter what business you acquire, you will experience surprises. I have. It's going to happen. And if you can do it in an industry that you're familiar with, the knowledge that you have — it helps with your build, it helps you pull certain levers to do better, and then when you experience challenges you already know the people to talk to, you've maybe already seen a variance of this challenge before.

Find your sure thing. Lean into your experience. That's what I've done.

If you don't have a sure thing, go find someone with a sure thing and leverage theirs. I've considered: here's an appraisal acquisition I've already maxed my SBA capacity on, not ready to do this acquisition, but hey — ETA entrepreneur, let's go do this one together. I'm going to be able to have the lack of friction in getting the seller on board, able to support them, but they're still going to have the weight and the ability to learn.

I'm actually trying to convert the challenges of the market into a good thing. It's easier to recruit appraisers in a down market — bringing them to my company is a lot easier to do when volume's down and they're hungry.