Major challenges exist within our appraiser education given the dramatic changes in technology. These challenges include appraisal standards, our basic and advanced education, and some claims by software providers. A quick overview:
- Subjective acceptability in standards;
- Inferential assumption in curriculum;
- Regression coefficients all over the place.
- Subjective acceptability. Many consider appraisal to still be mostly “art.” In the early days of valuation, this was probably true. In fact, it can be argued that art is a part of science. The problem lies in our standards which require subjective personal belief as proper justification. The scope of work guidelines require an appraiser to produce credible work measured as acceptable when:
- The work meets client’s expectations; and,
- Other appraisers do it this way.
The key word is defined as “worthy of belief.” Belief. Our profession appears to be belief-based. Accuracy does not show up as a goal of the development standards. Precision (sureness) is also missing from our standards. In any case, measurable sureness is not required for an “opinion.” Subjective belief is our mantra.
Today’s technology and complete data sets enable measureable trueness, sureness, and clarity of modeling decisions. We must head in that direction.
- The Inferential Assumption. In the rush to bring “statistics” into the appraisal curriculum, it was somehow assumed by authorities that appraisers should use pretend populations (of competitive sales) then imagine that a judgement sample or convenience sample is close enough to randomness. Next, sophisticated p-values and confidence things are calculated on the subjective, limited, data to prove that somehow the right model was selected. This is all very sophisticated and very wrong. (See the American Statistical Association position paper: Statistical Significance and P-values).
The appraisal problem involves prediction, not characterizing a population from a sample. Prediction involves data science, computation, and brain-machine optimization. Data Science requires subject matter expertise. It doesn’t require any inferential statistics.
- Regression. Regression coefficients are not equivalent to adjustment estimates. (See the Appraisal of Real Estate, 14th edition, p. 400). Yet some appraisal software developers continue to contend that their package provides wonderful results at the push of a button.
Beyond the realm of this short blog are two more issues related to regression. The regression solution also commonly misuses the R2 calculation. R2 is rarely an indication of the relevance of the regression model. An even worse misunderstanding is assuming that the inferential statistical model also applies. It seldom does. In fact, for normal valuation, it never does.
In Evidence Based Appraisal© the principles are clean: 1) use the complete competitive market segment; 2) Apply classification and simple regression tools, and 3) create reproducible work files.
February 21, 2018 @ 11:05 am
The debate of art v. science will never go away for appraisers, given the inherent imperfection of real estate markets. Markets that more closely approach the [unrealistic] ideal of the perfectly competitive market of neoclassical economics (conforming tract homes, for example) are more deterministic and objective, and hence more conducive to statistical modeling (science). At the other end of the continuum, however, markets are indeterminate and subjective (special-purpose or unique properties), and more appropriately analyzed via manual valuation (art). Among the challenges for appraisers is to understand the nuances of the market, and know when to apply art v. science, and in what proportions.
February 24, 2018 @ 2:11 pm
And lets not forget common sense. If at the end of said analysis if it doesn’t make sense (would not sell for that) something is wrong.
February 28, 2018 @ 10:39 am
“Thank you for the opportunity. I cannot get to it as I am engaged with assignments and cannot shake loose to research, coordinate, inspect, and then complete/deliver an appraisal until later next week. Thanks for the consideration.” – this in order not to (gasp- heaven forbid) “alienate” a client…
If appraisals were not 20-40% analysis and 60-80% guidelines and extraneous and ancillary & minutiae requirements and scope that add up to 60-80% of the time spent on one, we would be able to supply the valuations needed as they are needed. The incredible dittsy scope creep, the one more one more load of straws adds to enormous amounts of time & costs in terms of getting them out the door. Like lawmakers, clients seem to try to solve everything with MORE AND MORE little requirements be they addenda, comments, verification and reporting and as marketers like to say, much much more.
There is a cost to all this that depletes the mental budget and slows things further. The appraiser is having to produce a proprietary report-to-order STRESSFULLY mindful of being careful to not omit or do anything “wrong” in terms of the specific way and format requirements spelled out in each proprietary LOE, or else receive the “revisions needed” or worse, “error correction” (they aren’t errors) request, when appraiser is trying to move on with life and GET ON WITH YOUR ASSIGNMENT REQUEST and keep you updated with continual STATUS reports.
It’s the way it is – but each “it’s only a little thing” adds to time and lengthens eta. The churn and burn people who throw reports at you don’t care, they just wait for stips and revision requests and then deal with it- I guess- but those who do a front side good job, trying to comply with all the NON USPAP AND PROPRIETARY “requirements” and “guidelines” that make an appraisal into a ridiculously and unnecessarily long thing find themselves dealing with primarily non value issues experience the overload. It just adds up to TIME, and that’s what constipates the valuation pipeline. https://www.youtube.com/watch?v=HYhdbxj-yoI BULK! MORE ADDENDA! MORE SUPPORTIVE INFO! Valuation???? That’s assumed.
When you are tasked with finding an appraiser to take on an assignment that isn’t straightforward, or one in which the appraiser can tell right off by looking at current market data that it wont supply the happy guideline numbers, the above especially comes into play. They know if they accept, all will rejoice (and immediately move on) but after submittal, the grief starts as market reality numbers often doesn’t fit the NON USPAP AND PROPRIETARY “requirements” and “guidelines” and everyone assumes, well, all the appraiser must do is provide comments, and that is why the appraisal begins to resemble War and Peace, and this takes place sometimes days after the submittal when the appraiser is again being asked for YOUR BEST FEE AND TAT for the next fiasco…