Do We Predict Or Not?

[J Grant]

That does not address how you get there...just what there is.

Exactly. How we got there is the SOW of the appraisal The SOW is summed up in the statement of MV on the URAR ( on a narrative appraiser would provide their own summation ) URAR below

"Based on a complete visual inspection of the interior and exterior areas of the subject property, defined scope of work, statement of assumptions and limiting conditions, and appraiser’s certification, " (how we got there, the appraisal )
"my (our) opinion of the market value, as defined, of the real property that is the subject of this report is $ , as of , which is the date of inspection and the effective date of this appraisal."

 

[J Grant]

One of the reasons appraisers believing, or representing to others that we speculate or predict prices/ most probable prices, is that everyone from HS kid to Grandma to RE agent are running around predicting prices, we are the ones supposed to be presenting a SOW valuation model.

Anyone can mouth off with a price prediction. Knock on any door, the homeowner says they "know" what their home is worth, or they bet they can get X $ if they put it on the market, RE agents run around telling people what the house is worth or what it will sell for or what they should pay , AVM's provide price estimates from not vetted prices producing an AVM value estimate that is speculative ( thus a range of confidence around it )

Appraisers inadvertently cheapen or eliminate the need for appraisals by saying appraisals are price predictions ( they are not, they are valuation models)....Keep in mind other products do provide price prediction free, or low cast and fast. .AVM's, BPO's, evaluations etc....so why claim our product does the same, but costs more and takes more time ? Especially since the claim is false...the reason appraisals are relied on is for the valuation model they provide.

 

[Gobears81]

One of the reasons appraisers believing, or representing to others that we speculate or predict prices/ most probable prices, is that everyone from HS kid to Grandma to RE agent are running around predicting prices, we are the ones supposed to be presenting a SOW valuation model.

Anyone can mouth off with a price prediction. Knock on any door, the homeowner says they "know" what their home is worth, or they bet they can get X $ if they put it on the market, RE agents run around telling people what the house is worth or what it will sell for or what they should pay , AVM's provide price estimates from not vetted prices producing an AVM value estimate that is speculative ( thus a range of confidence around it )

Appraisers inadvertently cheapen or eliminate the need for appraisals by saying appraisals are price predictions ( they are not, they are valuation models)....Keep in mind other products do provide price prediction free, or low cast and fast. .AVM's, BPO's, evaluations etc....so why claim our product does the same, but costs more and takes more time ? Especially since the claim is false...the reason appraisals are relied on is for the valuation model they provide.

It sounds like your main issue with referring to our analysis as a prediction is that we do more work than the layperson that spouts out a number as the "value", when they might not even know the definition of market value. Going back to the definition of prediction, as Overimprovement posted:

"foretell on the basis of observation, experience, or scientific reason"

Maybe the HS kid, as you mentioned, might be able to draw from observation their value prediction, while an agent might be able to use observation and experience, but using the term prediction for our appraisals does not cheapen it as the process qualifies as "foretelling on the basis of scientific reason". Similar to what Mr. Rex posted earlier, we are valuing based on a hypothetical scenario, so it will never happen. Even in the highly unlikely scenario that a sale of the subject property is consummated on the effective date, that sale constitutes a price, not value.

 

[J Grant]

It sounds like your main issue with referring to our analysis as a prediction is that we do more work than the layperson that spouts out a number as the "value", when they might not even know the definition of market value. Going back to the definition of prediction, as Overimprovement posted:

"foretell on the basis of observation, experience, or scientific reason"

Maybe the HS kid, as you mentioned, might be able to draw from observation their value prediction, while an agent might be able to use observation and experience, but using the term prediction for our appraisals does not cheapen it as the process qualifies as "foretelling on the basis of scientific reason". Similar to what Mr. Rex posted earlier, we are valuing based on a hypothetical scenario, so it will never happen. Even in the highly unlikely scenario that a sale of the subject property is consummated on the effective date, that sale constitutes a price, not value.

My main issue with referring to our analysis as a prediction is that is is not true ( unless we state it s the purpose of assignment ) That lay people, RE agents, and AVM's all "predict" or speculate on prices/their idea of value was used to contrast what we do vs what they do.

WHERE does it say in a MV appraisal that we are predicting a price or predicting a value? If that is what an appraiser is doing, then they need to state that "A price or a value prediction" as the purpose of the assignment. The problem with "prediction"" is it implies (or literally means to some) an expectation for that price to happen in the actual market . But that is impossible, we don't control the actual market, we can only control what happens within our appraisal.

Yes, we are we are valuing based on a hypothetical scenario, so leave it at that, the appraisal is a valuation model based in part on the hypothetical scenario of the SC approach ( and the cost approach is also a hypercritical scenario, unless there was a crew on site constructing a replacement or reprodction of the subject on eff date lol )

I suppose we can say at the end of our reconciliation... "I predict my own market value opinion will be 300k ! And then you state the MVO as 300k. ).

 

[Terrel L. Shields]

Not every commercial property is bought for its income potential

Exactly, many people buy a property for the benefit of their (intangible) business model. We had a large ranch sell for $1,800 an acre 6 years ago. It sold this year for $10,000+/acre to a poultry company that plans to build a huge (perhaps the worlds largest) processing plant. No one can "predict" that but it isn't a reflection of the real estate value, rather the anticipation that this plant will make the company a lot of money and the fact cities committed to enlarging their sewer plant to accommodate them, which other towns didn't want to do, and where else were there any land tracts able to accommodate this facility? Darn rare indeed and none close to both a huge water line and a new sewer plant.

Are we not speculating on the most probable actions of market participants supported by observations of past activity? How is that not predictive?

exactly...​

epresenting to others that we speculate or predict prices/

Call it what you want, it is still a prediction...you are focused upon some future event as if we "speculate" - no, prediction is a supported effort to anticipate that future value which is the very definition of the income approach.

Graaskamp devotes considerable time and text to discussing the role of forecasting in appraisal and was an early adaptor of cash flow predictions, and devotes time to explaining its role in feasibility analysis and highest and best use.

 

[J Grant]

Exactly, many people buy a property for the benefit of their (intangible) business model. We had a large ranch sell for $1,800 an acre 6 years ago. It sold this year for $10,000+/acre to a poultry company that plans to build a huge (perhaps the worlds largest) processing plant. No one can "predict" that but it isn't a reflection of the real estate value, rather the anticipation that this plant will make the company a lot of money and the fact cities committed to enlarging their sewer plant to accommodate them, which other towns didn't want to do, and where else were there any land tracts able to accommodate this facility? Darn rare indeed and none close to both a huge water line and a new sewer plant.
exactly...​

Call it what you want, it is still a prediction...you are focused upon some future event as if we "speculate" - no, prediction is a supported effort to anticipate that future value which is the very definition of the income approach.

Graaskamp devotes considerable time and text to discussing the role of forecasting in appraisal and was an early adaptor of cash flow predictions, and devotes time to explaining its role in feasibility analysis and highest and best use.

Yes, borrowers purchase based on anticipation of future benefits, but they pay TODAY's price to get those benefits ! (today contemporaneous to the as is effective date )

RE,..the land was valued at $1800 an acre 6 years ago, and now 6 years later it is 10k an acre. So if you valued it today it would be 10k. The borrower invested and won. The land could have also stayed stable or declined in price. Whatever happens later, and whatever future benefits a buyer projects to get, they still are paying today's price..., and we are valuing the property deriving a probable price as type of value as of today's effective date.

 

[Bruce Hahn]

We build a model (sales adjustment grid, etc) to predict a value outcome. We most certainly do NOT forecast market values. We are not that scientific nor does an appraiser's opinion of market value have a certainty of outcome!

from www.differencebetween.com (underline added is my emphasis)

"Prediction
Prediction comes from Latin Pre meaning before and dicer meaning to say. Prediction is a statement that tells about a possible outcome. Opinion polls are conducted before an election, and predictions about the winner are made based on the results of these opinion polls. Predictions are risky in the sense that despite taking help from previous cases, they remain uncertain. Despite this uncertainty, companies and even governments take help of predictions made by experts and analysts, to undertake or reject certain projects. It is hard to predict about the success or failure of a newcomer in any field, be it sports or movies though there is no dearth of people making a claim of having known beforehand about the success of a star.

Forecast
Telling or giving information about a future event, before it has taken place, comes in the category of forecast. Before the advent of modern scientific tools and equipments, experts foretold about the likelihood of an earthquake based on abnormal animal and bird behavior, which was unscientific and closer to prediction. However, forecasting today is much more scientific and analytical with a far greater accuracy than at any time in the past. Forecasting makes use of scientific principles and allows error analysis. Forecast of weather is, therefore, accurate up to 90%."

 

[Bruce Hahn]

​

Graaskamp devotes considerable time and text to discussing the role of forecasting in appraisal and was an early adaptor of cash flow predictions, and devotes time to explaining its role in feasibility analysis and highest and best use.

The University of Wisconsin has created an online repository of a lot of Graaskamp's work. This is something all appraisers should visit because much of what he did was far ahead of its time. Sadly, it remains ahead of many appraisal practitioners today, although available tools make what he did much easier to accomplish!

 

[J Grant]

Bruce-We build a model (sales adjustment grid, etc) to predict a value outcome. We most certainly do NOT forecast market values. We are not that scientific nor does an appraiser's opinion of market value have a certainty of outcome!

Yes, in the SOW we build the models, but they only predict a value outcome within our own appraisal . Therefore, it is not really a prediction, but an appraisal model based opinion.

The verbiage is not about splitting hairs- the definition of an appraisal per USPAP is an appraisal is an opinion . I understand what you mean conceptually by a prediction, but appraisers need to avoid that term because it can mislead a user, reader, or the public to literally believe we are forecasting a market value, or price expected to take place (which you admit we do not do, however referring to it as a prediction can imply that )

 

[Mike Kennedy]

Exactly. How we got there is the SOW of the appraisal The SOW is summed up in the statement of MV on the URAR ( on a narrative appraiser would provide their own summation ) URAR below

"Based on a complete visual inspection of the interior and exterior areas of the subject property, defined scope of work, statement of assumptions and limiting conditions, and appraiser’s certification, " (how we got there, the appraisal )
"my (our) opinion of the market value, as defined, of the real property that is the subject of this report is $ , as of , which is the date of inspection and the effective date of this appraisal."

Please define "complete visual inspection" TIA
(and post the Source)