How Good Are You? Prove it!

Support and prove your adjustments!

Never mind that it’s not possible.  Just do it!

Do that, or face the wrath of being declared in “violation” of USPAP.  So what, exactly, does USPAP say about adjustments for real estate appraisal?  Well? Go look it up.  You have a copy.

Did you find what I found?

Yep,  . . . n o t h i n g  . . .  The word “adjustment” is not found, anywhere there.  In fact “adjust” is found only once in USPAP.  It is in Standard 6, on mass appraisal.

So we are left to what clients demand and define.  GSE’s such as Fannie and Freddie have written guidelines however.  But that’s a story for another time.  Today’s question is:  What types of adjustments can be made, and how can we ‘calculate’ them?

First off, let’s be clear on one thing.

We have been taught to “support” our stuff:  our opinions, our estimates, our calculations.  The word “prove” sounds like this can be done like a mathematical proof, just like you loved to do in your math class.

Well, if I calculated it right in the first place, I would not have to prove it.  If it was an opinion, then that’s what it is, an opinion.

  • Trust me, I’m smart, been appraising for xx years, and have XXX designation(s).

    Trust Me….
  • Here are the facts . . .
  • Here is the reasoning — deductive logic: If A is true, then B must be true, formulas;
  • Here is the reasoning — inductive inference, models (three approaches), algorithms;
  • Here is the story . . .

We are taught there are three ways to compare/adjust from a comp to a subject:  quantitative, qualitative, and relative comparison.  Why and when can each of these be applied?

  • Quantitative analysis requires that the data be numeric – with measurable intervals, like inches on a tape measure.
  • Qualitative analysis only requires an ordinal observation: better, or worse, larger or smaller.  An example is view.  Most people agree on better or worse, but cannot measure how much.
    • Relative comparison is a form of qualitative, but the method is to put each comps particular feature in sequence from best to worst, then position the subject in there.
Simple, right?

As it turns out, there is more at play.  Like — how much data do you have?  How reliable is each datum?  Did you pick the right data set to begin with?  How good is your measuring stick?

But wait!  There’s more!  There is a trade-off between precision and understandability.  Like rounding numbers.  And like some things really are better done by a trained human mind, like fitting curves to data in plots.

And remember, always be a good boy/girl – support and prove your adjustments, and never, ever violate USPAP adjustment instructions.