EBV© (Evidence Based Valuation) was created to update the appraisal process to modern standards.
The appraisal process, and appraisal standards were built to accommodate yesterday’s difficult and sparse data. Just collecting the data was 80% of the work. Who you knew was as important as what you knew.
The process was simple: 1) collect some comparable sales; 2) adjust for differences; and, 3) reconcile why there was remaining uncertainty. The main goal was to be believable (credible). (The “Scope of Work” concept was yet to be incorporated.)
Today things are different.
Today’s data is instantly available in near-complete form, ready for analysis. The ideal process reads differently. The steps are clear:
- Download all data which might prove to be useful.
- Reduce to a competitive market data set.
- Expand, if necessary for optimality.
- Predict to a defined range.
- Estimate reliability.
Evidence is simply more complete, and empirically defined.
Reduction of data to the competitive set requires visualization, expertise, and data analysis.
Expansion requires a different expertise: awareness and application of the statistical bias-variance tradeoff, as well as familiarity with the product type, market area, and dimensionality of the competitive elements.
Range shaping is the result of calculation and estimation of steps 1-3. If necessary, this leads to game-theoretic analysis, which seldom leads to an equilibrium point.
Risk/reliability estimation integrates probabilities from each of the above steps.
Evidence Based Valuation (EBV)© reflects the transition of other disciplines and professions. It is simply the reliance on analytical, logical, or quantitative information, rather than pure careful judgment.
For appraisal, the evidential reliance on judgment “comparable sales” is not disputed. Judgment- based data and convenience-based data are evidence. It is just that the quality of this information is clearly in doubt when additional information is available. The colloquial speak is “more data is always better, until it becomes garbage data.” (Bias-variance optimization)
Today the analytic asset analysis development path is defined in two ways:
- Market visualization, including graphs and maps, interactive and static; and,
- Artificial intelligence (AI) which clarifies, enhances, and empowers the best of the expert brain.
Traditional regurgitation in legacy methods, legacy education, and legacy regulation will continue to restrain the potential to ensure the public good. With EBV© — Precision and accuracy are optimized.
Politically, the solution is clear, easy to present, and touches personal voter experience. It has to be the future. Public policy must take the lead.