For some people, Evidence Based Valuation (EBV)© feels like a threat to “proven” appraisal practices. Others may believe it is a pressing, needed radical change. It is neither.
Modernized appraisal unifies the best of established theory and modern methods. It is that simple.
Traditional appraisal practice was built on sound fundamentals of economic theory. These are well-established — comprising principles of anticipation, supply and demand, substitution, balance, and “external” effects. This includes all the elements of microeconomic theory, in a context of macroeconomic and local conditions.
Modernized practice also embraces economic theory. There is really no change. So what did change?
That’s easy. It is technology of two types — product technology and process technology. Many changes have happened with both products and processes. For the most part, appraisers are consumers of product technologies, like cameras, printers, email, internet data, mapping, electronic delivery, and instant data. Data which is substantially complete and available to validate, transform, and enhance. Appraisers are also consumers of software products: form-filling, calculating, and spreadsheeting, word processing, drawing-making, and visuals such as maps, plans, plats, and photos.
On the other hand, appraisers are (or are supposed to be) managers of process technology. That means, in simple words – process data into information into predicted value with seamless delivery. In this context, process technology applies field-related expertise, visual interface, and algorithmic models. This is where appraisal has fallen severely behind.
Data → Relevant information → Useful prediction → Understandable results
It is easy to see that product technologies have changed dramatically. All the above change has taken place in just 30-40 years. In legacy appraisal practice, what has not changed is process. For the most part, appraisal process (aka valuation process) has changed little in nearly 100 years. Three approaches, pick comps, make adjustments, reconcile, form your opinion, then support and justify it.
Today this process remains the same. It is required for licensing, for designations, for administrative law, for federal compliance, and per the pseudo-governmental “Standards of Professional Appraisal Practice.” Pick comps, compare comps, give opinion, support the point-price opinion.
Appraisal modernization addresses big data challenges and opportunities. The answer to big data is the modern “science of data.” Today, data science graduate degrees are available at most major universities around the world. Evidence Based Appraisal© is a subset of data science theory and practice. This subset employs complete data sets, augmented expert judgment, and reproducible algorithms based on human modeling expertise.
So wherefrom came the gulf of appraisal process technologies? It came from human resistance to change. Inertia continues so long as no external force moves it. Appraisal practice, appraisal education, appraisal standards, and appraisal regulation – all are effectively unchanged because there is no change in product demand, no change in education/training, and no regulatory instigation. A vicious circle.
For change to happen, one of two things must happen. Either there must be less friction for new methods. Or, there must be an increase in reward for new methods. Real progress may require both.
Data science comprises three elements: 1) computer power; 2) complete data, and; 3) field-related expertise. Modernization will require the push of regulation, the reward of demand for a superior product, and training of appraisers in modern tools, methods, and critical thinking.
Modernization is new methods. New methods are data science. Evidence, logic, results. Not opinion.