Actually, they are not new.
The economics are not new. The designated three alternatives — cost, income and comparison — approaches remain valid. What is new are today’s technologies. The ones important to us are: 1) the extensive and complete data bases of market data, 2) computation power and algorithms, 3) interactive brain-machine interface.
The new appraisal methods have been called “the new valuation modeling paradigm” by Marvin Wolverton, PhD, author of the AI’s statistics book. The core element of this paradigm is that in most areas, complete data sets are available. There is no need to take samples. If you have all four, or twelve or one-hundred twelve directly competing sales, you use those — not a subjective or convenient subset.
The complete data set — the full competitive market segment — enables better precision, better accuracy, and big benefits. Big benefits for the clients. Big benefits for the appraisers. For appraisers who are ready to learn some simple but effective modern methods of analysis.
Appraisers do not need to understand the mystical, mysterious or even mythical inferential statistics. The hard stuff you may have always wondered about. (Or tried to avoid.)
For appraisers, the subject matter is important.
What you learned about the three approaches, economics, and market behaviors are still very important. No other profession or AVM nor magical regression can replace that knowledge, and competence.
The new methods can be called “Evidence Based Valuation,” or EBV©. The evidence is based on data selection methods based on market evidence, rather than the analyst’s subjective beliefs. Subjectively selected data yields subjective results. Objectively defined data yields objective results.
Finally, the new valuation modeling paradigm reflects a change in valuation culture and thinking processes. The traditional culture of ‘trust me’ has stood the test of time. With sparse and difficult data it was historically the best and most reliable path of developing an opinion. In some rural areas, corrupt jurisdictions, and developing countries — judgment/convenience based data selection is still superior. A market ‘story’ can be better than junk data calculations.
Why does the traditional ‘trust me’ model persist? Because it’s how we think. How we were trained. How our older peers expect us to respond. It persists because our education does not teach “what is a good comp.” The closest our literature gets is a circular explanation. A good comp is competitive. A sale is competitive if it is similar. And a property is similar if it is competitive to the subject. Full circle. And again. Check it out.
Why do we want to follow this EBV©stuff? To do a better more efficient job, feel better about ourselves, and generate more income. It’s a small change in thinking and attitude.