Modernize What ?!!!

This is the last of this “modernize” series!  Out with the old!  In with the new!  Modernize!

The GSEs (Government Sponsored Enterprises – FannieMae and FreddieMac) adopted the “modernize” word.  This in relation to their new data requirement electronic form.  Which is now called generically the “UAD” (“Uniform Appraisal Dataset”) which is actually the new UAD3.6, replacing the old “un-modernized” UAD 2.6.

So what do we have now?

This Modernizing Appraisal series is about the analysis process, not FannieMae and FreddieMac reporting requirements. The process is identical:   1) The problem;  2) The data;  3) Predict or adjust;  4) Communicate.  We continue here on #1 – defining the  problem to be solved.     Read the earlier parts of this series here.

The GSEs need data.  The new UAD gives the GSEs data.  Lots of data.

This universal uniform form . . . necessitates the gathering of a lot of data.  Data which may or may not be relevant for a particular property appraisal.  This overkill irrelevance issue is partly dealt with by the interactive aspect of the software.

From my outside view, it appears the GSEs adopted the “quant” viewpoint in creating this interactive form (“just give me the data, and I’ll figure it out”).  And yes, in time this will enable the GSEs to automatically generate better algorithmic valuations.  On the other hand, it also creates a greater burden of data collection – of un-needed detail.

We must distinguish between data collection (picking comps) from information analysis.

Given that in a typical market there may be only a handful of actually competitive sales,  only a few ‘comps’.  Analytically, this also means that only four or five elements of comparison (predictor variables) really matter.  (Like income, size, age, location.)  Most other elements are trivial, and fall within the grouping of personal preference, but within “highest and best use” confines.

The result is that the appraiser is compelled, (even with the ‘dynamic’ UAD form), to collect unimportant or even irrelevant data.

In this context, the word “modernize” has been used to soften the required change.  The change in the user-client requirement for reporting of value.

The new ‘form’ does not focus on the actual important part – the analysis.  It does not focus on the development model, but does intrude on the free and critical expertise of the analyst-appraiser.

It has long been my contention that user-client requirements may modify the actual appraisal opinion/result, but forms an exception from the required definition of value.

For example, the 10% adjustment max, 15% net, 25% gross “customary implicit guidelines” can lead to ‘fudging’ the allowed data, in place of using the most relevant data.  Another example is the long-required form 1004mc (market conditions), which prescribed a manner of calculating a time adjustment.  The form was subsequently debunked as resulting in an incorrect time adjustment, often calculating to even in the wrong direction!

What needs “modernization” is the analysis, the development part of appraisal.  Minimally,  what is needed is greater integration of development/analysis with the reporting of that analysis.

Needed modernization integrates today’s technologies, which comprise Artificial intelligence and data science (Evidence Based Valuation).

These build and enforce assisted human decision-making about risk and value.  The means are visual (graphs) understanding of markets, and needed skills in critical and uncertainty-based thinking and recognition.

We continue to encourage these requirements in our curriculum:

• Data science concepts;
• Proper prompting of Ai;
• Essential thinking skills.

We are not a “CE hours for dollars” provider.  We focus on your future in a new world.  A community of forward looking, contributive professionals.  The CAA (Community of Asset Analysts).