Around 1986, licensing and education efforts started – in order to “help prevent another crisis” like the Savings and Loan meltdown of those mid-1980’s.

Effectively, the standards of the professional appraisal organizations were adopted in a joint effort of those groups.  Then the “congressionally authorized” non-profit Appraisal Foundation took over licensing as well as standards functions, and the education content needed for licensing and certification.  The states then (mostly) adopted these “regulations.”

These early standards reflected the realities of data and analytic power from the 1930’s to the 1970’s.  Data was paper-based.  MLS sold ‘books’ came out every three months.  Listing books and ‘hot sheets’ provided a source of sales less than four months old.  The telephone and telephone book were important.  Who you knew was often more important than what you knew.  We called it “confirmation.”

It was difficult (impossible) to actually identify “the market” to study.  We used our judgment, knowledge, and experience to “pick comps.”  Time spent to verify 5 or 6 sales was well worth the effort.  “Adjustments” were subjective, based on market familiarity and repeated, unchallenged “adequacy”.  Adjustments just “felt” right.  There was no real way to “support” your opinion of what an adjustment should be, for time, location, financing, even size.  To support one adjustment (if the data was available) took days.  (Far longer than the time spent for the actual two-page report.)

Experience and credibility were king.  Here is my opinion.  And here is my “support.”

Then things changed.  But education did not.  Some clever but irrelevant, random-sample “inferential statistics” were thrown in and called “advanced methods” – which are then ignored in the profession.

That was some thirty-five (35) years ago.  There has been no real effort to update education, standards, or practices.  No real effort to utilize the instant data, computation, and visualization available now.

What is needed now are two major overhauls in regulation:

1. Recognition that “trust me” picking comps is subject to bias. It needs to be replaced with an emphasis on market measurement, not comparing comps.
2. Some path to release the constraints on innovative education. A way to encourage (rather than freeze) today’s ways of data science.

The release from bureaucratic stifle can only come from terminating 54 separate jurisdictions “approving” the same-old material over and over, requiring 2 or 3 forms each, and hundred$ of dollars every two years.  All this to support an inconsistent, often arbitrary, spaghetti-bowl overlay with little real purpose for the public trust.

The larger picture is what appraisers are required to report:  a “value” which does not reflect economic intrinsic value, nor is it based on a definition of value.  A value definition substantially ignored or just wishful at best.  (Such as “knowledgeable” buyers and sellers.)  Groupthink permeates the entire loan industry, the practice, the enforcement, and the standards.

An appraiser’s work is not inherently biased.  The markets, the sale prices reflect existing cultural or systemic bias.  Appraisers report and regurgitate sale prices.  They do not make them up.

It appears that the appraiser’s job – to simply report what things are selling for – may not be what is needed.  Current sale prices (definition of market value) embed the tail-risk of “totally unexpected” black-swan events.  Risk events which come along regularly every 12-15 years!

Yet appraisers are locked into the education, the standards, and user expectations.  Fundamental value, sustainable value is precluded.  The “most probable” sale price rules are embedded in education, in regulation, and expectation of lenders (who can only make “compliant” loans).  For a lender to fully consider macro-economic ‘tail’ risk would make them unable to compete with other lenders who also must ignore this actual and real risk.

This is not comfortable.  But until we face these realities, the public good will pay the penalty again.  More bank failures.  More lost homes.  More lost respect for the good side of capitalism, and less need for the strangulation of more and layered regulation.  Or we will visit again in 12 years!

We need to end the education regulation innovation strangulation.