Yes. Appraisal as we know it is dying.
Can it be saved? No.
So what should I do? What should “we” do?
To answer these questions, we need to look at causes and conditions. Some of these are obvious.
- Judgment is good; Analysis is better.
- Human generalization is excellent; Computation is fast.
- Good comps are good; Complete market data is optimal.
- Point value is understandable; Mathematical result distribution is not.
- A credible opinion requires belief; an analytical result requires scientific reproducibility.
The truths above are being embraced by our competitors.
- Accounting firms hire appraisers
- AVMs (Automated Valuation Models) get better
- Non-appraisers do “valuations.”
- Data providers provide analytics
- Programmers program solutions
The data has already been gathered. The analytics software is free. The pictures have already been taken. “Let’s Make a Deal!”
So what can we do?
So what can we do? If we cannot be saved. If computers are faster. If we have complete data. If we too have software. If we too can provide results instead of opinions . . . Leads to an obvious question: Can an experienced appraiser do these things as well as, or better than those others?
I believe the answer is yes. The answer is in the questions . . .
Analysis requires judgment. Human generalization is enhanced by computation. Complete data can be enhanced/cleaned as well as “confirming a comp.” A point value is an inherent part of a predictive value distribution. A documented, reproducible result is the most credible, believable answer.
An opinion requires “support.” A reproducible result is self-revealing.
The world needs an enhanced data stream. To survive, we can enhance the data stream! What a concept. Maybe it can even make appraisal fun again!
The world needs a point value. It also needs a reliability score. A distribution of probable value. An alternative fundamental value. (Not just a market price, twisted to represent real value). The world needs more from us, not a stronger defense of the old way of doing things. The world needs results, not more empire building. The world needs the result, not the opinion.
Is the profession dying? Yes. Is valuation expertise still needed? Yes.
We need a new vision. A new way. Happy New Year.
January 3, 2018 @ 4:33 am
I recognized this years back and its why I stopped paying dues to the fraud organization calling itself AI. Despite their occasional missives, they have done nothing to protect or promote the industry. Playing cucks to the bankers, dropping standards and pretending someone that can’t communicate, analyze or even holds a modicum of ethical standards (that they don’t enforce) is worthy of their “MAI”, it was all done to keep their little club that includes too many fourth rate analysts and economists paying dues. Fewer than half of the MAI’s presently could have received the designation 25 years ago; I estimate maybe a third. To use the vernacular, you guys suck.
You want to restore this industry? Re-affiliate with NAR, understand that there is a right and wrong way to do these things and enforce it, and maybe you will at least have a chair at the grown up table. And if you’re going to use “software” then at least take a course in linear algebra and perhaps you will come to the realization that you’re doing it wrong; but I doubt it.
I would encourage all appraisers with an established business to dump the AI frauds. Trust me, that designation has become valueless and its even becoming less and less impressive in court as documents prepared by MAI’s are read, if you can stand to read them, and understood to be the pap and bilge that most are.
January 3, 2018 @ 11:49 am
Bob – you voluntarily gave up your A.I. Designation? MAI? SRA?
During the merger of SREA and AIREA I too was on the side of retaining an affiliation with NAR. I must have been in the minority.
I know some appraisers who gave-up their designation in early 90’s after licensing, saying it wasn’t needed or useful any more.
January 3, 2018 @ 4:44 am
I have been in the business for over 30 years. I always say somebody has to go out and kick the tires.
January 3, 2018 @ 6:06 am
“The world needs a point value. It also needs a reliability score. A distribution of probable value. An alternative fundamental value. (Not just a market price, twisted to represent real value).” My opinion is that what the world needs and what the world wants are two different things. I believe that the world craves certainty over probability – even a false sense of certainty is preferable to many. We are caught between giving the world what it wants and what it needs.
January 3, 2018 @ 7:26 am
Need a bran muffin, Bob?
Understanding that there is a right way and a wrong way to do things is what George is trying to get across. We don’t need more courses in comp selection, depreciation, reconciliation, etc.; what we need is a fluent understanding of data science. That is, what does the data in this market look like? What methods would be best used to analyze it? How do you segment a market? Cluster analysis? What if your subject falls on a cluster boundary? Do you look into the neighboring cluster too? Having identified a couple of dozen individual items that affect value, which ones have the most impact on it? How does one find out?
Most importantly, how did you get here from there? Can you do it again? Can I do it myself? Reproducible research is the ultimate goal. “Credible” means “worthy of belief.” “Belief” is an act of faith. Would you rather put your faith in an appraiser who’s been doin’ it for thirty years, or in a clearly written research document that leads each reader to the same conclusion without ambiguity? Oh, excuse me: Only the former requires faith; the latter does not.
January 28, 2018 @ 10:34 am
Jim,
By some alchemy it came about that USPAP was drafted with a goal that appraisal development be “worthy of belief”: however, it is now obvious an egregious error was committed. The goal of appraisal development must changed to reliability.
Reliability is confirmed via repeat-ability while belief is confirmed by repetition.
Assuming accurate facts, reliable results can be independently verified by repeating the steps taken in logical analysis, while a credible result simply repeats what is already believed. Currently the USPAP requirement of appraisal development has appraisers telling them what they already believe. It’s easy to understand why residential contract prices are most often also the appraised market value.
I wonder if appraisal is really dying or if it already died, learned from its errors and is now re-building from the excavation for the foundation to the apex.
Edd
January 31, 2018 @ 7:45 pm
Mr Plante is correct. George is pushing data science. I’m an appraiser for 37 years AI designated SRA and AI-RRS . I am 59 years old and just finished a Master Degree in Data Science. Appraisers are Data Scientists yet we don’t have a Data Science curriculum. The threats to our profession would be non existent if we did as we would be in control of emerging data science methods. Instead we have let the data geeks take it from us. Average salary for first year data scientist is $130k with benefits and vacation. Not bad for a recent college graduate.
February 6, 2019 @ 5:46 am
AMEN! Thank you, Keith, for telling the truth that needed to be told!
January 3, 2018 @ 10:20 am
Thank you George for the post. I believe that the appraisal profession is dying and that AVMs and data collection firms will soon take the majority of appraiser jobs. I know that there is a need for analysis that comes from a human, but that is expensive and may not add the value that it costs. Hopefully I’m wrong.
January 3, 2018 @ 5:13 pm
George, you could not be more wrong. The first thing we need to recognize is that the residential real estate market and C&I markets are not the same. While neither is perfect, the imperfections found in the residential side are far more frequent. It is only the C&I side that could reasonably be conditionally replaced by Big Data, Investors can be grouped together over far wider geographic areas than residential buyers can be. While the focus of most big data pushes has been to replace in person residential appraisals, its real applicability is on the commercial side. MAIs BEWARE! You are putting yourselves out of business. As for the residential side many of us will continue to point out the big data snake oil being foisted on the public. As of this moment, there is no big data program that can reliably, credibly and consistently analyze the buyer-seller imperfections on the residential side of the market and provide a market value across most markets-let alone all markets. Anytime someone thinks they have such a system let me offer you a few addresses as a test. BTW-The appraisal PROFESSION can be saved. It merely requires a majority of appraisers with integrity to stand up in public and start dealing with the real problems. I’ve found many AI Members willing to try. We need more. Mike Ford, Chairman National Appraiser Peer Review Committee, American Guild of Appraisers, #44 OPEIU AFL-CIO.
January 25, 2018 @ 5:46 am
This will be the second career/occupation that I have lost in my 66 years. The first was in the aerospace industry when the manufacturing sector of the country began it’s downfall through the non enforcement of tariffs and outsourcing to other countries that began in the 1980’s. Fortunately I had a college friend in the appraisal business and he got me trained and up and running in a short period of time. This was in the early 90’s and pre-licensing. It has been a good run but I would not recommend it to any young person. It is without a doubt a dying profession. As a matter of fact most professions are. AI (artificial intelligence) is taking over most professions/occupations and it is coming so fast that within 2 decades the permanent unemployment rate is expected to approach 40-50% of the population. This is not necessarily a bad thing as the entire concept of employment/work is in the process of being redefined at the highest levels of government/industry around the globe. UBI will become real and I am just sad that as an older person I won’t get to see it. Yes there will still be some opportunities for those in the appraisal industry over the next several decades but the appraisal profession as we know it is in it’s final throes. Good luck to everyone in the future.
January 25, 2018 @ 6:11 am
At the end of the day all the clever “needing more, better, an alternative fundamental value, not just a market price, twisted to represent real value, fluent understanding of data science”. It’s still the appraisers opinion of value. A house is worth it’s (+/-) condition, (+/-) it’s neighborhood. That will never change.
Its simple all the big wigs want to make the process so nuclear. I might add no program can replace my expertise of “Observing” a property inside and out, it’s neighborhood and all the intricate characteristics, going in and out of all the data on comp searches. God forbid the lazy agents who can’t do a proper listing to save their life. Such as, on the surface no info about FBA but as you look thru the comp “long and behold FBA” with a family room, bedroom and bathroom. Or calling a shed a barn???? Clueless agents will list a dog house as a value amenity.
Detail searching thru comps for the best and proper value takes man/Woman power. More power to the elites who want to cut “us” GOOD APPRAISERS out to save a buck. The entire market will be so screwed buyers, sellers, investors, bankers left confused without us. Even if it takes 2 or 3 appraiser opinions.
Just in case, Just in case here’s a TIP: “Never put all your apples in one basket”. Hope you old heads who are seasoned and new heads with a twinkle in your eye have back up careers. For instance look at coal miners. Who need to reinvent their livelihoods . Take a class or classes in new energy like building windmills or solar panels. The trucking, delivery and cab driver industry is next. autonomous cars and drones will replace them.
I say again in confidence “no self-generating computer, nor drone can replace the observation, detailed searching and analysis of real estate properties like an appraiser. But, they just might!
January 25, 2018 @ 6:47 am
When the UAD forms came out I predicted what we are going through right now; we are a dying breed and profession that was necessary before UAD. Now, between the UAD data base, AVM’s and other data sources, the old fashioned way of doing an appraisal is kaput! We do not have a powerful enough voice in the discussion, the NAR is much more powerful than the AI ever dreamed of being. Realtors do not want appraisers appraising their sales, they just want their sales to close escrow unencumbered. We are just a nuisance to the vast majority of agents and brokers out there. We “come in low on value”, we “hold up closings”, we do all sorts of things to keep a sale from closing, according to the NAR. Fannie Mae and Freddie Mac are doing mortgages without appraisals, yes I know they say it is only a small portion of the mortgages, but who knows the real numbers? Are they really going to be truthful? I think not. The NAR pushed for these AIW’s so that their sales happen. So this is what we as appraisers have to do; try to make a living by expanding into non-lender work, weather it out for the next 5 years until the next big wave of foreclosures hits the fan. Then we will be doing mainly REO appraisals (hopefully Congress won’t get rid of that requirement either).
January 25, 2018 @ 7:45 am
Interesting that the marketplace is going to computer generated appraisal while our scope of work has been expanded to more detail, verify sales data, check water heater strapping, pictures of CO2 and smoke alarms, check for peeling paint, attics for leaks. Why are we doing this stuff if it’s not really that important to valuation. How does a computer generated report complete a valuation on a “crack house”?
September 1, 2018 @ 6:50 am
Your scope exoanded to include a quasi home inspection because it is cheaper than paying for an inspection separately and puts the liability of problems on you.
January 25, 2018 @ 8:15 am
The big banks and the “stock holders” of those banks are always going to want a pair of eyes and a certification number to go along with those eyes to walk through a property. That way they’ll have somebody to blame when they decide to screw everybody during the next “bubble” they created. It’s cyclical and most everybody knows it. Just do the most professional and best job you can and CYA, that way you’ll still be there to do REO appraisals on the way back down.
January 25, 2018 @ 8:54 am
WHO STILL WANTS TO BE AN APPRAISER ? PLEASE RAISE YOUR HAND
The world is full of insanities and here is another example: The average AMC Fee in Southern California where I work and live is about $350. I was getting that TEN YEARS AGO, and if the past is any reflecting of the future in another 10 years the fee might just still be $350. at best. So raise your hand for those who still want to be an appraiser. I do have one good thing to say about the appraisal business, the fee paid by most AMC’s makes for good grocery money – but don’t count solely on it to make a living unless you want to be at the bottom of the food chain.
Remember that $350. Is not all yours to keep, travel expenses, auto upkeep, gasoline, E & O license fees, educational classes to renew, and don’t forget Uncle Sam he WILL get his cut of around 30% +/-
Most surviving working appraisers that I know, all did something else before getting into the business, so they have good pensions when they had a REAL job, maybe some rental property, a wife or husband that still works, or maybe some social security. Just don’t quit your day job to become an appraiser.
Yes! The appraisal profession is dying.
January 25, 2018 @ 11:04 am
Very few weather they be individuals or corporate entities want an appraisal. Then why the need? To reduce and diversify risk. Computer algorithms can’t be sued possibly the entities that use them but as we have seen in the past bankruptcy tend to vail responsibility for bad business practices. As long as markets sense risk the human element will be required. Letters behind the name are elevating but having E&O insurance with a lengthy retroactive date speaks as much if not more.
February 7, 2019 @ 9:45 am
I’m not an appraiser, however, I do know you folks are undervalued and should be making at least twice as much as you’re bringing in. For the gentlemen claiming he pays 30% in taxes, well, if all you’re doing is appraising and you’re paying 30%, I think you should find a different accountant. Just a suggestion. Good luck to all.
February 7, 2019 @ 10:47 am
I commented a year ago about this subject and the appraisal profession has not gotten much better; AVM’s, hybrid reports, property inspectors, real estate brokers all want to do our job cheaper, faster, better, or so they say. Everybody nowadays wants everything faster, cheaper and better, appraisals are no different. I don’t think lending appraisals will ever go away completely, but will diminish in number, even FANNIE MAE wants more appraisal waivers, another nail in our coffin.
February 7, 2019 @ 4:26 pm
Glenn E. Wierzbicki January 3, 2018 @ 4:44 am
I have been in the business for over 30 years. I always say somebody has to go out and kick the tires.
OMG, really nailed it. Genius.
Nice discussion on an important subj. Buuuut, a sort-of parallel discussion might entail: RISK. Not so nice, but maybe should be tackled.
April 2, 2019 @ 8:02 am
Appraisers don’t need designations, they need courses in data science. And frankly, the appraisal business is being regulated out of existence. USPAP and FIRREA are nice ideas, but let’s consider what they’ve actually produced. Appraisers have to cram hundreds of regulations and rules into a book that takes days if not weeks to prepare, fees are questionable in certain markets, bank customers are impatient and don’t want to pay the fees, and then regulators come along and complain about a wrong date on the letter of transmittal, or the outdated definition of market value, or the fact one of the comparable sales in the appraisal of a hotel exceeds three years, when in fact the appraisal on many, many, many properties can be conducted in 25 pages or less in two, maybe three days at most. Think about it – when you go get your taxes done, you don’t have the return “reviewed” by another CPA. When you get open heart surgery, a second cardiologist doesn’t come along and rip open the stitches to “review” the heart surgeon’s work. When you get a colonoscopy, a second doctor doesn’t come along and re-do the procedure to make sure it was done right by the first guy (thank God). The appraisal business is being needlessly regulated out of existence, fees are terrible where I’m at (Chicago), and the “institute” isn’t interested in teaching analysis and data science. But, appraisers continue to get rectal exams every week, and the pay certainly isn’t commensurate. No respect.
April 2, 2019 @ 4:37 pm
Mr. McLeary, I left your missive on me wife’s mantlepiece and honest to God, she howled laughing.
Anyway we can mimeo this thing and send it to every licensee in the country????
Man, I’m looking forward to any and all your comments!
January 21, 2020 @ 5:46 am
The point of George’s article is moot at least in terms of loan origination or refi appraisals. What everyone fails to acknowledge is the fact that the lending industry has changed the definition of “value“ as we typically understand it. They are in the business of risk management and they care more about the $ generated at closing than well supported collateral valuations. The default risk is currently negligible so why pay a ~$500 appraisal fee? Think of the increased profit margin nationwide for the lenders, if on average they pocket that amount on every loan closed. The lending industry’s business model has changed and why you may think that’s a moral disgrace, it’s a business decision. And who can blame them after the last crash where overwhelmingly all all those loans had appraisals associated with them. Appraisals may not have been the direct reason for the foreclosures but they sure had a lot to do with the amount of losses. To suggest appraisal valuation opinions need confidence levels is as already obsolete as saying every loan needs a human opinion of a point value. They don’t.
June 11, 2021 @ 6:50 am
For all you “Princess Bride” fans, here’s a pertinent quote: “Good night Westley, good work. Sleep well. I’ll most likely kill you in the morning”. I’ve been an appraiser for 38 years. A veteran co-worker once told me we’d all be replaced by computers in a couple of years. He said that in 1983.
June 11, 2021 @ 8:25 am
Computers, AVM’s, analytical data all will play a part in the appraisal future, along with Big Brother loosening lending guidelines again so that buyers who cannot afford a home will be able to get one, note I said get one, not buy one because the government will make sure that grants etc will be put in the mix; but when it all comes crashing down again in a few (2-3) years appraisers will be needed again. I’ve been only 16 years as an appraiser and specialize in complex and oddball properties where there is not a lot of analytical data already, and I stay busy. I say diversify, do more non lender or portfolio work and wait it out just like in 2008. Appraiser will always be needed, but I have to agree with some that the AI really does nothing of benefit and even ties our hands with the endless USPAP updates etc that no one else has to follow except us.
April 24, 2022 @ 7:47 pm
I’ve been in this profession for 20+ years and it is certainly in its death throes. I would never recommend it to any younger people. In real dollars, top of the profession commercial guys are making less than they were in the 1970’s. When I started in the 90’s, many guys were billing $300k+ per year and were home for dinner every night. Now, the guys who are doing $300K+ are working 90 hours per week, managing multiple assistants, on call all the time, etc. Steer clear of this dead end. I wish I had known better when I was 21.