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50+ years of appraising

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CANative

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Here's a link to an interesting little essay I stumbled on. The essay mentions Richard Ratcliff who was a major contributor to the current definition of market value (he was bashed and mocked for a long time for his view according to another 50+ year appraiser who was a colleague and who I am sitting next to in a class I've been taking.)

Enjoy the read and discuss if you like.


http://www.entrepreneur.com/tradejournals/article/163680972.html
 

Randolph Kinney

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The flaw in the current methodology is the development of a conclusion that is statistically unreliable predicated on the sample size used.

The prevailing market value definition presumes rational behavior on the part of buyers and sellers. For many types of valuation problems the assumption of rationality may be appropriate. However there may be situations where a conclusion predicated on irrational behavior may be appropriate. This thought suggests a possible future need to include behavioral economics studies and theories into the discipline of appraisal.

Over the years, there have been significant developments in the field of risk management. However, the orientation and use of appraisals as an input into risk management decisions has not yet been fully recognized. For a lender in the process of foreclosure resulting from a declining market, it is of little comfort to know that at the time the loan was made the value was well supported. Development of appraisal input into risk management would seem to be an area crying out for new theories and approaches.

No matter how much technological progress or new theory is developed, the skill of the individual appraiser in analyzing the property and its value elements will remain key to the credibility of the value conclusion. High-speed computers and sophisticated programs have not yet advanced to a point where they can replace an appraiser's judgment.
My bold. It appears that no new theory has been developed despite the advances in technology. However, my bold has indicated the shortcomings that are prevalent today.

We know from the past boom irrational behavior came into play for the buying decision. Home purchases were substituted for investments with the expectation of speculative gain. Could this factor be worth something? Say in risk management?

The problem of statistical confidence or reliability because the sample size is too small for the number of variables is what it is, unless the appraiser is deliberately ignoring more relevant data.

Good article for history and pointing out the shortcomings.
 

Couch Potato

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The first and last of the items you put in bold are closely tied, Randolph. Appraisal is not a statistical analysis (although statistics can be used as a tool.) If it were, those statements would no longer be true.

It a nice read of one man's view of the recent history of the appraisal profession. I wonder just how many residential appraisers have the temperament and mental capacity to read and understand the article. :shrug:
 

Ross (CO)

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An interesting historical perspective, worth book-marking for sharing or another reading. Now it is clearer where Mr. Santora has sourced several of his philosophies and insights.

A few lines in the essay are noted:
1)...the cost method is suspect as a market valuation process.
2)...departure from highest price in favor of most-probable selling price.

and with a view toward the future:
3)...Development of appraisal input into risk management would seem to be an area crying out for new theories and approaches.

In consideration of the unraveling mess from this time interval of irresponsible lending, the dumbing-down of due diligence and the infusion of "satisfactory for the needs of the client" as ways to minimalize the appraisal process, and the emergence of a need for scrutiny and disclosure of "market trend analysis" in many assignments now.....there does seem to be a need for a new sort of "approach" being added to available valuation tools.

If lenders want Market Trend Analysis to be an enhanced development and reporting tool in residential appraising today.....they sure might be wise to order refreshed market trend analyses from the SAME appraiser (if possible) at periodic intervals into the FUTURE so that the origianl trend recognized for the subject's market area can carry forward. Report stats of the recent past for today's appraisal and substantiate that trend with new data from the immediate future. Making the client want that information, however, is a new challenge not conquered. These MTA reports could be short, specific in scope, following the SAME parameters as the MTA done in the original report, and a reasonable fee and turn-time might be agreeable to both parties. It sure might make for softer landings if that certain loan was ever headed for a crash-foreclosure....and could be a risk management approach of a different kind.
 

Randolph Kinney

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The first and last of the items you put in bold are closely tied, Randolph. Appraisal is not a statistical analysis (although statistics can be used as a tool.) If it were, those statements would no longer be true.
I see that you caught the significance. Statistics is not the end all to be all.
 

Fred

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Statistics is not the end all to be all.
Statistics: collecting, analyzing and summarizing data. As far as I know there are sound applicatons and unsound applications of "statistics." As soon as some comes up with a non statistical way to estimate most probable price, I will pay attention.
 

PropertyEconomics

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New Mexico
Statistics: collecting, analyzing and summarizing data. As far as I know there are sound applicatons and unsound applications of "statistics." As soon as some comes up with a non statistical way to estimate most probable price, I will pay attention.

Hmmmm I thought you could use Qualitative Ranking and come up with an estimate of probable price. :shrug:
 

CANative

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California
An analyst would almost have to use statistics to develope qualitative analysis.
 
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