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It’s easier to get paid if your service provides a real value.  Old expectations, or new client expectations?

Are you an “old way” appraiser? — or a “new way” appraiser?  To see yourself, it may be good to observe what real value our appraisal customers want.

The Old Way: Appraisal meant the customer had to totally rely on our judgment of the right market, the right comp selection, sales confirmations, and a “reconciliation” of thoughts.  Judgment and experience were king.  Per standards and per state regulations, the product is the ‘point value’ opinion.

Theoretically the point value was the “most probable,” even though no probability analysis is even pretended.

The New Way: Valuation means data-centric data selection.  It relies on substantially complete data, and quantitatively connects buyers’ behaviors to property features.  The new way relies on computer power and visualization — to optimize expert experience in market measurement.  The result provides:

  • Point value (analytically ‘most probable’);
  • Range (probability distribution);
  • Risk/reliability score;
  • Forecast values.

The old way was built on good judgment and market familiarity created by good mentoring and plain ol’ time-and-experience working in a particular market area and property type.  It also required knowing people – the lenders, the sales agents, and people to call to ‘get comps.’  Data was either old printed books, or a trip to the county assessor, or phone-calling people you knew.

In the past, lenders and investors relied on trust (or compliance) in an appraiser for the recent value, then proceeded to use their underwriter judgment –  and perhaps a credit score – to make the loan or investment decision.  Easy.

The competence was about familiarity, trust, and credibility (worthiness of belief).  Gathering comps and thinking about adjustments (similarity) was an interactive brain process.

The new way is different.

Data is internet immediate.  All sales, good or bad, are available electronically.

Competence is different.  It means :

  • Download all potentially useful data;
  • Explore the data, understanding markets visually;
  • Identify the complete Competitive Market Segment (CMS)©;
  • Apply one or more of the three basic predictive algorithms to the CMS.

The final step in a valuation is to send the integrated data stream to the client, with an appropriate dashboard for viewing by the user.  (Different users will have dashboards with different emphases.)  This is similar conceptually to the announced new (conditional information) electronic forms by the GSEs (FannieMae and FreddieMac).

The next blog in this series will discuss today’s compromised appraisal practice, enforced by standards, regulations, user expectations, appraiser education (inertia), and “established body of knowledge.”

”WE MEASURE MARKETS, NOT COMPARE COMPS.“