Does Evidence Based Valuation (EBV) renew – or replace — traditional appraisal process?  Is this a new thing, or an old thing made better?

To answer this question, we need to look at the basics.  We need to compare the steps of TAP (Traditional Appraisal Process) with EBV —  modern Data Science applied to valuation.

TAP is traditional:  1) Scope of work; 2) Describe the subject; 3) Pick comparables; 4) Apply three “approaches” and reconcile.

EBV is data-centric modern:  1) Hypothesize (subject and data frame); 2) Explore and clean the data; 3) Adjust and predict by model/algorithm; 4) Show your results.

Directly, TAP was historically well-designed for sparse, difficult, or obscure data.  EBV is designed for complete (or substantially complete) data, with varying degrees of relevance and reliability.

If there is a main, singular difference, it is that EBV focuses on the complete, relevant data set.  In this way, it is a “refinement” to traditional appraisal, compliant with USPAP (Uniform Standards of Professional Appraisal Practice).  USPAP clearly and specifically requires the use of “such comparable sales data as are available.”

Change #1:  The availability of data is perhaps the main change from the past to today.  The change  is from “picking comps” to “delineating the market segment.”

Change #2:  The goal for TAP is a believable opinion.  The goal of EBV is measurable reliability.

Change #3:  With TAP, the goal is to form an opinion, and find a way to support that opinion.  With EBV, the analysis comes first, and produces a value result and additional useful information.

A core change:  In traditional, legacy practice, appraisers have been taught to pick comps first, then do an analysis of the market.  This makes no sense!

In EBV, the market analysis comes first.

In fact, EBV theory is summarized as the “Market Analysis Approach.”  This is because it fully integrates the traditional “three approaches.” EBV removes the need to explain (reconcile) discrepancies – while it otherwise handles situations of sparse data as well as complete data.

The good news: EBV analytic models easily import to, and align to, traditional judgment-based process.  EBV naturally aligns with modern analytic technology, including the controlled use of Artificial Intelligence (AI).

The advent of AI impels and compels the use of the science of data, in place of emphasis on credibility (worthiness of belief).

Believability is nice.  Measurable reliability is better.

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Watch for our upcoming monthly “Friday Why Day ” for you!  We examine elements of EBV, AI, and “Vibe Valuation.”  The focus is on understanding (the why of) models and algorithms and (the what of) valuation and risk assay.