“Ya gotta show your work,” my third-grade teacher said. “But I got the answer right!” said I.
“Ya gotta support your adjustments,” they say. “But I’m credible!” say I.
Incredible.
Why are we harangued to “support” our adjustments? Why are we sold one form after another of magical adjustment calculators? Another enchanted $129 class to forever solve our adjustment attitude!
USPAP says that’s all I have to be. Be believable. Be worthy of belief – be credible. Just be.
Why do we have this problem — embarrassing, abusive, and seamy seeming unresolvable?
Why can’t we just take the numerical data, do some math, show our work, and get the answer right? (Just like our third-grade teacher insisted?)
The theoretical ideal technical, econometric, algorithmic answer to that is difficult. It involves such words as high-dimensionality, interaction, autocorrelation, non-linearity, heteroskedasticity, and predictable irrationality.
In simpler terms: too many unknowns; not enough data.
Even simpler: property uniqueness.
So how do we do better, given that the task is so mysterious?
The old way, developed early in the last century, recognized the difficulty of gathering data (on a onesey-twosey basis). For non-residential work, it was more important who you knew than what you knew. For residential work, the main issue was that good data (before internet MLS) was usually four months old before you got it. And confirming (more recent sales) with public records meant a trip to the county assessor’s office. Convenience and good judgment were king.
As such, once you had four or five ‘good’ comps, your work was mostly done! Qualitative analysis (superior-similar-inferior) was trusted and easy to understand. And the human brain handled three or four data points nicely, on one visual sheet of paper.
The task was not mysterious. Trust was primary. Credibility was expected of the appraiser-person, not the data!
Easy. Find some comps. Avoid adjustments. Wrap up your thoughts.
Today, it’s not like that. Hasn’t been for a long time.
Today, the world wants numbers. Needs numbers. The focus is on the data. Results from data are measured in reliability: accuracy and precision…not believable credibility.
Data, information, and results cannot and should not be measured by credible “worthy of belief,” as dictated by USPAP.
Today, we can show our work. We can show the data, we can show the parameters of our key variables. We can show how the data is circumscribed for relevance. Users can see the market, with visuals/graphs.
We can “let the data speak.” The data and the model are self-explanatory. There is minimal (or zero) need for ROV (Reconsideration Of Value) complications and slow-down and irritation. Particularly, with the anticipated interactive online forms, the reviewer/underwriter can instantly get their “better comp.”
May 29, 2024 @ 1:44 am
I wonder with the advent (or should I say the widespread proliferation) of AI whether data scientists will replace appraisers once and for all, as has long been the goal of lenders? I say this not to disrespect or accuse lenders of bad intentions, but rather to state reality as I see it. I remember a lender who asked me why I charge so much for a market value opinion? My fee was $2,500 for an appraisal of an 25,000 SF multitenant office building. Back then, I had to deliver a printed copy of the appraisal report. I pointed to my car in the bank’s parking lot which could be seen from his office window. My car was an old Subaru station wagon with an A/C unit that no longer worked and roll-up windows. I told him this is what I could afford working as an independent fee appraiser and that the appraisal required a solid week to research, write, review, and deliver to him. Best Regards, Glen Kemp
May 29, 2024 @ 5:02 am
Spot on George you nailed it. Real Estate Valuation can be bloody complex.
Obviously, some can and do show their work and sometimes it’s repeatable but even less often it’s supportable.
The problem is everyone wants and expects a simple answer from a bloody mess.
Why? Well you said it, we used to give them what they wanted to hear, a simple answer. That went on for a very long time, so long we gave up on trying to fully analyze the data because we weren’t being paid to. They only want the simple report.
What changed? Some people, not all but some, needed answers to questions we couldn’t prove from our simplified analysis.
The people that needed answers were those not benefiting from the simple answer particularly when they felt that answer was not right.
What’s the solution to this hot mess?
Thankfully, technology from other industries and professions continued to evolve around us but we can still adapt. We can get back up to speed.
It will take take some investment that has been stripped from us, but I think enough people now see the need and it will happen.
With the new technology, we can prove our work, we can support our adjustments and even support why we can’t adjust everything in the old unsupported manners.
I am gaining traction on a new path forward, providing real answers, sometimes very quickly.
May 29, 2024 @ 12:03 pm
George,
Continuing in what I have learned from you, in my appraisal work I am a “data hog”, as one of my professional colleagues so nicely puts it. “There are lies, damn lies, and statistics.” However, without the factual basis of statistical data there is only speculation, which is inadequate for a rational approach to real property appraisal practice, and life.
Michael Howard
Palm Springs, CA
July 26, 2024 @ 12:51 pm
George, thank you for the analysis. I especially, like the historical perspective. When these topics come up, I am always depressed, because users of our profession, do not always seem to proritize expertise (as you point out).
Next, I think of other professions. For example: Do Judges, CPA’s and Doctors have to support their work to extent that we do? If they did, would their professions function efficiently?
This will likely sound like a rambling dialog: But its what comes to mind when I read your comments above: Do Judges in a court room have to do more than show their work (ie. rely on prior decisions)? Likely yes, but is every decision, within every case, scrutinized to the extent we our? Do CPA’s have to support every decision regarding depreciation (or show historical support for every questionable expense deduction made). Yes, Audits are made, but is every tax payer subject to an audit of their taxes (of course not…). Do doctors and surgeons have to write up long reports for every diagnosis or surgery that they make or perform? Their procedures are likely reviewed (but are patients given written reports of the review of their surgery? Answer: of course not – it would be caos).
The above are just examples, but they also represent professions where, in my opinion, the participants perceived credibility, far exceeds the perception of our profession. That is where your historical notes were so interesting.
In conclusion: I guess it is the question of whether appraising is a profession (which requires extensive qualifications and public respect/trust); or something less.
Tom Neeson, Laguna Niguel, CA