Who cares if it’s reliable? It only needs to be “credible” – believable.
Credible: “Worthy of Belief”
Reliable: “Repeatability of findings”
Credibility comprises both trustworthiness and expertise. It has both objective and subjective elements. One can also increase credibility by being a good salesperson by convincing the reader of your viewpoint. You form an opinion, then support that opinion. Credibility is not objectively measurable.
Reliability is the degree of consistency of a measure. An appraisal is a measure of value. One can increase reliability by being more accurate and more precise (trueness and sureness). Reliability is measurable.
A measurably reliable, repeatable valuation will always be more credible!
A well-proffered traditional appraisal may or may not be more reliable.
I believe that trustworthiness and expertise are important. But this blog is about reliability. How can the valuation profession deliver more reliable work?
The first requirement is that analysis and results be repeatable. The second requirement is that the accuracy of the results be measurable.
How do we achieve repeatability? Reproducible work means two analysts can take on the same task, and get the same results. What are the steps?
- The problem must be stated in identical terms. For most appraisal work, this is not difficult.
- The data and predictors (comps and elements of comparison), must be the same.
- The analytics must be the same (both classification and association).
In line with the above three steps, some calculations may entail small differences of decision when it comes to handling outliers. These must be clearly set out. Outliers may be deleted, corrected, included, or explained, possibly with a sensitivity analysis, giving the reader/client options. Either way the workflow breadcrumbs, the audit trail, is clear. It’s that simple.
Why doesn’t the valuation profession provide these superior results possible today? Why not results that are simpler and more meaningful? Simply, it’s inertia. Personal resistance and social compliance.
- Our education. Appraiser education substantially repeats approaches developed in the 1930’s. Some progress has been made, such as the use of the accountant’s spreadsheet, the discounted cash flow model, and more recently, use of graphs and Geographical analytics (GIS). However, no progress has been made on data selection. It’s still, “trust me, I know a good comp when I see a good comp.” It’s still – use no more than 7 comps in a report because “it’s too hard to understand” more than that.
- Our standards. While standards require the use of all available information – the universal violation of those standards by peers, by clients, and by regulators is strongly established. “Everybody does it.” “We expect it.” “We enforce it.” The written word is overwritten by the belief system – is it “worthy of belief.”
Today. We have the software tools. We have the data. We have the straightforward models. We even have some appraisers who know how to develop evidence-based, measurably reliable valuations. What we need is one or two major clients who genuinely want a measurably reliable valuation. It is possible. It can be done.