Appraisers historically have been sold bogus franchises, software, and other magic solutions.

Only $199.95 — Push the enchanted ‘calculate’ button and get ‘correct’ adjustments.  Sounds good.  It is nice to think that for this small charge, I can save hours and get the right, fully mathematical solution to an adjustment amount.  I will be wonderful!

I have seen this marketing plan work many times.  They imply “We have found the enchanted formula, a secret algorithm, a sly way to calculate adjustments.  In a way that no one ever before us has done!  Not other appraisers, not AVMs, not even their PhD-economist-statistician-computer-clever programmers have ever discovered before.”

The purveyors, sensing that they can’t really expect banks, regulators, investors, or the courts to believe “our” magic – ask “How can we make money anyway?”  How?  Aha!  We can sell it to appraisers.  They’ll believe it will work (whether it actually does or not).

The problem is that the same algorithm – called “regression” has been discovered and rediscovered by appraisers and by purveyors of magical appraiser software – many times.

And sometimes the “rediscovery” has been by students in the Stats, Graphs, and Data Science curriculum, who see the special cases where simple regression does work – then reason that it will work for any two variables.  IT DOES NOT.

Pushing the magic ‘calculate adjustment’ button does not work.  Even if you pay for it!  In simplistic terms, it’s like someone convincing you that they have better magic for adding three numbers.  “Use our software to add B + C + D to get Adjustment A.”  Well, you already knew how to add three numbers.  So why pay for it?  Because it’s magical, and if you’re paying for it — It must be good!

But it’s not.  The algorithm works whether using free software or paid-for seller software.  So what’s the issue?  The issue is that sometimes you do not need to add B + C + D.  Sometimes it is just C + D.  Or sometimes it may be A + B divided by C.  Wrong model, same algorithm.

In the same way, simple (or multiple) regression only works sometimes, under some conditions.  This is a modeling decision to be made by the expert – you.  You get paid for your expertise, knowledge, and good judgment.  Not for pushing a magical button.

If it were that easy, there’d be no need for you, the modeling expert.  Anyone can push a button.

You are paid for understanding:

• If A and B and C should be the inputs;
• If A, B, and C should be added in this case;
• If maybe squaring, adding and square-rooting is better; and,
• The X, (the result), your thinking process, and explaining the ‘why’ of it to your user.

In the Valuemetrics.info curriculum we provide critical learning on sharpening your judgment, decisioning and explaining models, and free, open-source software, with amazing help available, and the Community of Asset Analysts who care.  Join us.