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You MUST make adjustments.  Everybody knows that!

Or not.

In USPAP and The Appraisal of Real Estate (TARE) we have two predominant topical sources.

The USPAP standards do not require adjustments.  The word “comparable” is not defined, nor is the word “adjustment” found in USPAP.  Nothing about adjustments nor picking comps.  However, we note that the USPAP Scope of Work Rule has the user expectations and peers’ actions test of “acceptability.”  (Basically just do what everyone does, right or wrong.)

(As a side note, after much ado — the real property Standard 1 has only one word change in five years.)

The current official unofficial Advisory Opinions of the Foundation reference the 2018-2019 version of USPAP.  While the word “adjustment” is used many times, there is no help on how to reckon an “appropriate adjustment.”

On the other hand, in TARE (Appraisal Institute), “adjust” or “adjustment” shows up 687 times – so it must be important.  In particular it says to use “extreme care,” and use only “truly comparable” comps, and always use “special care” in reckoning adjustment amounts.  In spite of all this, there is no unified theory (nor algorithmic practice) of adjustments.

There is however, a basic recognition between quantitative and qualitative adjustment “support” methods.  Quantitative methods are built on numbers, even as they are estimates, with very different and uncertain levels of reliability (precision).  Qualitative methods are more subjective, but theoretically rely on ordered (non-parametric) preference.  (Such as economists’ preference functions.)

Three basic quantitative methods are suggested in TARE:  Paired data, grouped data, and secondary (third-party) data.  We are warned to use “extreme care” because they are “difficult to apply,” and “could produce unreliable results” with narrow samples.  It further states that secondary data analysis uses “data that does not directly pertain to the subject or comparable properties.”

Also statistical, trend analysis, graphs, cost, and income techniques are mentioned, without explanation how they are to be used.  In each case we have admonishment that “special care must be taken.”  (But what comprises “special care” is never defined.)

Qualitative methods include “relative comparison” – better or worse in judgment.  Or, “ranking” analysis, which extends relative comparison to three or more judgments.  “Personal interviews” is listed as a qualitative technique, with no support nor explanation on how this works.

So, there you have it!  Just Eight pages out of seven hundred – “explain” carefulness in making adjustments.  Apply an adjustment, then figure out how to “support” your adjustment.  Be careful.  Use extreme care.   Use “truly comparable” comps.  Not imaginary adjustments nor “special care adjustments.”  (What are “regular” care adjustments?)

Why can’t we just calculate adjustments?  Because.  Again, we have rampant professional groupthink on how we wish things to be.  Not how things actually are.  Fiction versus truth.  It’s a pretend game.

The search for professional truth (and public trust) lies in a simple, basic algorithm of human growth.

  1. Admit there is a problem.
  2. Come to believe a solution is possible.
  3. Decide to seek and pursue possible paths to truth.