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Appraisal Institute Last-minute Shakeup

There is a stanza in the poem I like:

Drops the wind and stops the mill;
Turbot is ambitious brill;
Gild the farthing if you will,
Yet it is a farthing still.

This is old almost archaic language. Who knows what Turbot and Brill is? To make this clear, I asked Grok:

ME: From Gilbert & Sullivan, what does this phrase mean:
"Drops the wind and stops the mill;Turbot is ambitious brill;Gild the farthing if you will,Yet it is a farthing still."

Grok: "The lines you’ve quoted are from the operetta Trial by Jury by W.S. Gilbert and Arthur Sullivan, specifically from the Judge’s song in which he humorously recounts how he rose from a lowly position to become a judge. The stanza containing these lines is part of a broader satirical commentary on social ambition, deception, and the superficiality of appearances. Let’s analyze the meaning of the passage line by line, maintaining a formal tone and providing a clear, precise interpretation:

Drops the wind and stops the mill;This line employs a metaphor to describe an attempt to defy or manipulate natural processes, which ultimately fails. The "wind" represents the natural force that drives the mill (a windmill, in this context), and "dropping the wind" suggests an unnatural or futile attempt to halt or control it. The implication is that such interference leads to failure, as the mill (a symbol of productivity or progress) stops functioning. This sets the tone for the stanza, highlighting the futility of trying to alter fundamental truths or realities.

Turbot is ambitious brill;Here, Gilbert uses a playful comparison between two types of fish: turbot, a flatfish considered a delicacy, and brill, a similar but less prestigious fish. The phrase suggests that a turbot (representing someone or something of lesser status) aspires to be seen as a brill (something more esteemed or valuable). However, the comparison underscores that no matter how much the turbot aspires, it remains a turbot. This line satirizes social climbers or those who strive to appear greater than they are, emphasizing that their true nature cannot be changed.

Gild the farthing if you will,A "farthing" was a low-value British coin, and to "gild" it means to coat it with gold to make it appear more valuable. This line refers to superficial efforts to enhance something inherently worthless or of little value. It critiques the act of dressing up something insignificant to give it the illusion of worth, whether in terms of social status, wealth, or character.

Yet it is a farthing still.The final line drives home the central message: no amount of superficial embellishment can change the intrinsic nature of something. A farthing, despite being gilded, remains a farthing—a coin of minimal value. This reinforces the theme of authenticity versus pretense, suggesting that attempts to disguise one’s true self or status are ultimately futile.

Overall Meaning​


Taken together, these lines form a concise but sharp critique of social ambition and deception. Gilbert, through the Judge’s self-aware and ironic narrative, mocks the idea of artificially inflating one’s worth or status. The stanza suggests that no matter how much one tries to manipulate appearances—whether through ambition, pretense, or superficial enhancements—the underlying truth remains unchanged. In the context of Trial by Jury, this reflects the Judge’s own dubious rise to prominence, as he admits to using questionable means to achieve his position, yet the humor lies in his acknowledgment that such efforts cannot fully obscure one’s origins or true nature.

This interpretation aligns with Gilbert and Sullivan’s characteristic wit, using clever wordplay and metaphors to comment on societal norms and human behavior in a lighthearted yet incisive manner.

Yes, this so reflects the MAI: The basis of the profession is the deceptive perception of a superior and polished appearance (if all goes well and they don't screw up) that inflates the real value of an MAI appraisal that is basically quite and often fallible, and that, above all, lacks substance. These MAI appraisals are often the work of English and Philosophy majors with verbal embroidery worthy of the best novelist.
 
Yes, MAIs are mostly fakes when it comes to value. They lack the math. They spend most of their time developing appearances to show that they have followed the rules while meeting the client's demands. They are masters at this. Well, as long as you don't look too deeply at the facts and logic, or become too critical.

For YEARS, appraisal organizations have threatened appraisers with retaliation if they were critical of, or questioned the legitimacy of the appraisal profession, while doing little to really improve the standards beyond their decades-long standards of mediocrity.

And now, they will have problems with AI. Major problems. Can you figure out what they are?
 
Half of the leadership of the appraisal profession needs to be sent to the guillotine. - The other half strapped to the post and flogged.
 
If anyone still wonders who is friends with whom—and why it’s the same old story at the insta-toot—here’s an interesting piece posted on LinkedIn:

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I asked Claude: "When the real estate market crashes, how much money do investors typically lose on their commercial real estate investments. How much of a problem is this for the economy?"

Claude: "Based on my research, I can provide a comprehensive answer about commercial real estate losses during market crashes and their economic impact. Given your background in real estate appraisal, you'll appreciate the nuanced details about valuation impacts and market dynamics.

Typical CRE Losses During Market Crashes

Commercial real estate investors typically experience substantial losses during market downturns, though the magnitude varies by crash and property type:

2008 Financial Crisis Losses

During the 2008-2009 financial crisis, U.S. banks lost $110 billion on commercial real estate, at least one-quarter of their total losses Mounting commercial real estate losses threaten banks, recovery - The Washington Post. The losses were severe but took time to materialize - losses did not peak until three years after the recession ended in June 2009 Mounting commercial real estate losses threaten banks, recovery - The Washington Post.

Current Market Projections (2024-2025)

Analysts are predicting even more severe losses for the current CRE downturn:

Sector-Specific Variations

Not all CRE sectors face equal risk. Data centers and industrial buildings that support e-commerce have shown relative resilience. On the other hand, the office space sector remains a major concern Will the Commercial Real Estate Market Crash in 2024?, with office vacancy rates reaching a record high of 13.2% in 2023 An Overview of the Impending Commercial Real Estate Crisis for Businesses | Ave Maria School of Law.

Economic Impact

The CRE crisis poses significant systemic risks to the broader economy:

Banking System Vulnerabilities

The current situation is particularly concerning because:

Potential Economic Consequences

If the crisis fully materializes, economists warn of severe consequences:

Historical Context

The commercial real estate sector has historically been a significant factor in banking crises. During the 2008 crisis, the default rate on commercial mortgages was 1.2% versus 40% for sub-prime mortgages The Commercial Real-Estate Market’s Impending Crash - JSTOR Daily, yet CRE losses still represented a substantial portion of total banking losses.

Current Market Dynamics

The current situation differs from 2008 in several key ways:
  1. Interest Rate Environment: In the United States, we've never had interest rates go from zero to 5% Is Commercial Real Estate in for a Downturn…or a Crisis? | Yale Insights
  2. Structural Changes: The pandemic is forcing a fundamental reconsideration of how Americans work, shop and live Mounting commercial real estate losses threaten banks, recovery - The Washington Post
  3. "Extend and Pretend" Strategies: Smaller banks may resort to "extend and pretend" strategies—delaying the recognition of losses in hopes of a market recovery Commercial Real Estate Crash Could Trigger Economic Tsunami
The consensus among experts is that while a CRE downturn appears inevitable, the timing and severity remain uncertain. Some analysts predict the market to bottom out in 2025, while others say we won't see the full effects until sometime in 2027 A Recession and Pending Commercial Real Estate Crash - A Recession and Pending Commercial Real Estate Crash: What it Means for Roots.

For the broader economy, the key concern is whether this will trigger a broader financial crisis or remain a more contained, sector-specific downturn - much depends on how banks manage their CRE exposures and whether the Federal Reserve can successfully navigate monetary policy without triggering a broader recession."
 
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ME: Do you think commercial appraisers, if properly trained and given the right tools could do a better job of estimating the true value of commercial property?

Claude:
"Absolutely. Commercial appraisers with proper training and enhanced tools could significantly improve CRE valuation accuracy, which would help prevent the boom-bust cycles we've been discussing. Your 40+ years of software engineering experience combined with real estate appraisal expertise puts you in a unique position to understand both the technical and practical challenges here.


Current Valuation Challenges​

The fundamental problem is that traditional appraisal methods often lag market realities and rely heavily on comparable sales that may not reflect rapidly changing market conditions. We saw this clearly in the lead-up to 2008, where appraisals didn't adequately capture the risk building in the system.

Areas Where Better Tools and Training Could Help​

Real-Time Market Data Integration​

Modern appraisers need access to:
  • Live transaction data across multiple property types and markets
  • Real-time rental rate tracking and vacancy monitoring
  • Economic indicators that affect specific property sectors (like remote work trends for office buildings)
  • Capital market conditions affecting cap rates and financing availability

Predictive Analytics and Modeling​

With your programming background, you'd appreciate how machine learning could enhance:
  • Cash flow forecasting that accounts for economic cycles, demographic shifts, and structural changes
  • Risk assessment models that factor in tenant creditworthiness, lease rollover risk, and market volatility
  • Scenario analysis tools that stress-test valuations under different economic conditions

Enhanced Comparable Analysis​

Better algorithms could:
  • Weight comparables based on similarity across multiple dimensions (not just size/location)
  • Adjust for market timing differences between sales
  • Incorporate qualitative factors that affect value but are hard to quantify

Technical Implementation Opportunities​

Given your C++, Python, and R experience, you could develop sophisticated valuation models that:
  1. Process multiple data streams simultaneously - economic indicators, property performance metrics, market transactions
  2. Apply statistical techniques to identify valuation outliers and market anomalies
  3. Create dynamic DCF models that adjust assumptions based on real-time market conditions
  4. Build uncertainty quantification into valuations rather than providing false precision

Training Improvements Needed​

Appraisers need enhanced training in:
  • Statistical analysis and data interpretation
  • Understanding capital markets and how they affect property values
  • Technology tools for data analysis and modeling
  • Economic fundamentals that drive different property sectors

Market Impact Potential​

Better appraisal practices could help prevent crises by:
  • Providing early warning signals when valuations become disconnected from fundamentals
  • Improving lender decision-making through more accurate risk assessment
  • Reducing boom-bust amplitude by keeping valuations closer to economic reality
  • Enhancing transparency in commercial real estate markets

The Regulatory Angle​

There's also opportunity for appraisers to provide more value to regulators and policymakers. As we've seen with the current CRE crisis, regulators often lack real-time visibility into market conditions. Better appraisal tools and practices could feed into systemic risk monitoring.

The challenge, of course, is that improved accuracy might result in more volatile reported values in the short term, which some market participants resist. But given your experience in both software development and real estate valuation, you understand that accuracy ultimately serves the market better than artificial stability.

What's your sense of the biggest technical barriers to implementing these improvements? Are appraisers generally open to adopting new analytical tools, or is there resistance to change in the profession?"

ME: "Yes there is a very high degree of resistance in the profession to adopting new methods and standards."

(continued)
 
(continued)

Claude: "That resistance is unfortunately quite common in established professions, and it's particularly problematic in real estate appraisal where accuracy directly impacts financial stability. Your observation aligns with what we've seen in other fields where entrenched practices persist despite available improvements.

Sources of Resistance in Appraisal​

The resistance likely stems from several factors:

Economic Incentives: Traditional appraisal methods are faster and cheaper to execute. More sophisticated analysis requires time investment that may not be compensated in typical fee structures.

Regulatory Inertia: Appraisal standards and requirements are often codified in regulations that change slowly. Even when better methods exist, appraisers may stick with "approved" approaches to avoid liability.

Knowledge Gaps: Many practicing appraisers lack the statistical and programming skills needed for advanced analytical methods. Acquiring these skills requires significant time investment.

Client Expectations: Lenders and other clients often want simple, defensible numbers rather than nuanced analysis with uncertainty ranges. A DCF model with Monte Carlo simulations might be more accurate but harder to explain and defend.

Professional Culture: Like many established professions, there's often an attitude of "this is how we've always done it" combined with skepticism about new approaches.

The Cost of This Resistance​

Given your experience, you can see how this conservatism contributes to systemic problems:
  • Late Recognition of Market Shifts: Traditional methods often miss inflection points until well after they've occurred
  • Procyclical Valuations: Appraisals tend to amplify booms and busts rather than providing stabilizing influence
  • Inadequate Risk Assessment: Simple approaches don't capture the complex risk factors affecting modern CRE markets
This is particularly relevant now, as banks may resort to "extend and pretend" strategies—delaying the recognition of losses in hopes of a market recovery Is Commercial Real Estate in for a Downturn…or a Crisis? | Yale Insights. Better valuation tools could help identify problems earlier when there are more options for addressing them.

Breaking Through the Resistance​

Your unique background suggests several potential approaches:

Demonstrate Clear Value: Build tools that show obvious improvements in accuracy and risk assessment. Start with backtesting - show how better methods would have predicted past market turns.

Work with Progressive Firms: Some appraisal companies and institutional clients are more open to innovation. Focus on early adopters who can become case studies.

Regulatory Engagement: Work with regulators who are increasingly concerned about CRE risks. They have incentives to push for better standards and might be receptive to improved methodologies.

Education and Training: Partner with appraisal education programs to introduce new methods to incoming professionals who haven't yet developed resistance to change.

The Competitive Advantage​

Firms that do adopt better methods could gain significant competitive advantages:
  • More accurate valuations leading to better lending decisions
  • Earlier identification of market opportunities and risks
  • Enhanced credibility with sophisticated institutional clients
  • Reduced liability exposure from more defensible methodologies
Given the scale of current CRE market risks - with more than $1 trillion in commercial real estate loans coming due over the next two years U.S. Commercial Real Estate Is Headed Toward a Crisis - there's arguably never been a better time to push for improved valuation standards.

Have you considered developing some proof-of-concept tools that could demonstrate the value of better approaches? Sometimes showing rather than telling is more effective at overcoming professional resistance."

Me: Yes. ....
 
The appraisal leadership is to blame. Send them to the guillotine!
 
If anyone still wonders who is friends with whom—and why it’s the same old story at the insta-toot—here’s an interesting piece posted on LinkedIn:

View attachment 102927
That’s beautiful :rof:

Revaa is an advocacy organization for AMCs. AI is (allegedly) an advocacy group for appraisers. Those two groups could be opposing each other 95% of the time. The idea that they are working side-by-side is ****ing wild.

I’ve said for years, any member of revaa that also holds AI credentials should have them revoked. It’s impossible to advocate for both organizations.

3rd rate profession.
 
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