Cost Manuals

[Ben Vukicevich SRA]

Slacker,

I like the examples in your post:

But since Appraisal is both an Art and a Science, then it follows:


Appraisal:

1 + 1= What do you want it to be??????

I'm sure you've heard that old appraisal joke before. I just couldn't resist.

Ben

 

[Austin]

Slacker: If what you are implying about appraising is true, then who needs an appraiser to tell them what a property is worth? They can just ask their wife. After all, women make the decisions in these matters so who is better qualified, an appraiser or the wife? Wives know more about how buyers think. I think they call it a woman’s intuition.

 

[slacker]

Slacker: If what you are implying about appraising is true, then who needs an appraiser to tell them what a property is worth? They can just ask their wife. After all, women make the decisions in these matters so who is better qualified, an appraiser or the wife? Wives know more about how buyers think. I think they call it a woman’s intuition.

Austin,

No informed buyer or seller ever needs an appraiser or appraisal as long as the buyer has cash. The banks keep us in business don't they?

And if my wife says it's worth 200k then guess what? It's worth 200k, no matter what "R Squared" says.

I can hear her now....."If you thnk R-Squared is so helpful, why don't you have it mow the lawn!!!"

I saw a good bumper sticker the other day that read "DRIVER CARRIES NO CASH. HE'S MARRIED"

www.appraiseillinois.com

 

[Ben Vukicevich SRA]

Austin,

Anybody can be an appraiser, including my wife. She won't make any money at it because she can't do it with any great speed so it's not economically feasible for her to undertake the project. That's why I stated in my prior post that we act as super-informed buyers. We do it every day. Over and over. Eventually, I hope we get good at it.

The quest is value. My wife could wander down to the local assessor, have him pull sales, she could then choose the most comparable ones, drive by them, take a look and probably reach a reasonable value conclusion with the data in front of her, two weeks from now with a low degree of confidence as per the Freddie Mac AVM lingo.

Let's face it. AVM's are a "go, no-go guage." If the loan doesn't require any thinking and can be made with the AVM, it will be. It's not the value that's the issue. It's the loan to value ratio. It's low and they don't really need a value or appraiser. Next step up is the appraiser assisted AVM. Whoops, we need a mind in there to make a decision. That LTV is a little higher, so let's have an appraiser look at the output and temper it.

You method of valuation is perfectly fine because it works for you. But I can do it in my mind. It's faster. I can look at comps, sort what I want to use via the old tried and true FHA bracketing method and be done with it. Value is in the "mind's eye." My eyes are highly trained valuation machines.

Now I'll let you see what I put in my reports to keep the USPAP boogie man away. Comments, good or bad, by the forum would be appreciated.

"As adjusted, all sales are indicating a reliable value range for the subject. The appraiser's opinion of the subject's market value has been effectively bracketed by the sales prices of the comparables analyzed in the Direct Sales Comparison Analysis. This bracketing method was of primary importance and was given the most/greatest weight in the valuation process and in the formation of the appraiser's opinion of the subject's market value via the Direct Sales Comparison Analysis. The adjustments made in the Direct Sales Comparison Analysis were only an attempt to further refine and support the bracketing process."


And that's all adjustments are via the mind or multiple regression analysis.........an attempt....to refine bracketing. Because buyers are dumb and they only know bigger, equal or smaller AKA Better, Similar, Inferior. They don't think that hard. Neither should we or the result may become too statistically skewed.

Ben

 

[David C. Johnson]

<span style='color:darkblue'>Ben,

Good thoughts. I thoroughly agree to a minimal extent. However, I take considerable exception to a piece of unwarranted, obvious bias you've expressed in this thread:

"I don't like being a 'squid' "

There's nothing wrong with being a squid.

___________________

Austin,

Correction:

According to innumerable rigorous scientific studies funded by NIH, NAR (national), Mattel®, and several others, which are conducted regularly at all the nation's most prestigious research institutions and universities (except one), "Womens' Intuition" is now well understood to be a certain "inner voice" that lets women know when they are right -- regardless of whether they are or not.

(Extensive literary citations and references omitted here)

_________________

Slacker,

In your extensive listing of what informed buyers and sellers don't care about, you mentioned the following:

Beta Probabilities, Binomial Distributions, Chi-Squared Distributions, Confidence Intervals, Covariance's, Sum of Squares, F Probabilities, Fisher Transformations, Gamma Distributions, Kurtosis, T-tests, Z-tests, and last but not least the Pearson Product Moment Correlation Coefficient “R”.

I agree. Your average, typical buyers and sellers, when running these and the other more sophisticated statistical models amongst themselves, often overlook such essentials as accepted rounding conventions for intermediate formula indications -- they just don't care. However, F Probabilities may not be discounted to the degree you may be indicating. Many or most transaction participants constantly monitor their own getting F'ed probabilities.

Hey, you wouldn't be interested in trading that handle would you?

dcj</span>

 

[slacker]

Many or most transaction participants constantly monitor their own getting F'ed probabilities.

Hey, you wouldn't be interested in trading that handle would you?

dcj

This might open an entire new area of statistics. I like it! And I was considering Squidly as the new handle.

www.appraiseillinois.com

 

[David C. Johnson]

Now, I like that!!

Squiduously Yours,

dcj

 

[Rich Heyn]

Art or Science?

A few years ago I developed an AI seminar (Residential Design and Functional Utility) that dealt with the judgment side of appraising. Whenever I teach that seminar, I have a little joke that helps make the point that the appraisal process is not all science.

An appraiser is asked to testify in court. In an effort to confuse the issue and discredit the appraiser, opposing council asks if the appraisal process is technique or judgment, art or science? The appraiser, with uncharacteristic presence of mind, responds that the appraisal process is "the artful application of scientific principles."

Rich Heyn

 

[Anonymous]

>>how do folks without the M&S Residential Cost Handbook handle the cost approach on new construction for FHA or Rural Development (Farmer's Home)?<<

Contrary to popular opinion, when push came to shove a few years ago, Boeckh, then independent of M & S, submitted their manuals to FHA / HUD, and would send HUD's reply to anyone who asked for a copy. HUD stated explicitly that E. H. Boeckh cost data was applicable and their books could be used by appraisers....never mind you would have a fight on your hands with their dumba-- reviewers. It was not worth the trouble, but then again neither is FHA.

I use the Valuation Quarterly which is pretty vague, Boeckh software which allows you to survey the quality class, and I argue that it is about as good as it gets. Sure, you have the problem that Mr. Hottie-tottie is better as convincing morons (buyers) into thinking they are getting a really good deal at $100/Sf when a much better house is being built by some unassuming family outfit for $80/SF.

I appraise a lot for one such family group that deals with one bank and build only 10-15 houses per year. I can appraise them in the dark. I know their costs and I know their mark up. They rarely fool me. Recently I went into one that was especially nice and I said, let me quess, you intend to live in this one." His wife said, I told him if I move again in 5 years, I am divorcing him, so you are right, this is built for us." I like those kinds of new construction.

The cost books do provide some information you might need. I recently appraised a carpet store building new. They had a 25% allowance for floor covering which would cover only 50% of the store.....gimme a break, nobody wants $65,000 worth of floor covering in a small store. That was their way of padding the amount they want to borrow.

 

[Austin]

Is Appraising an Art or a Science?
Just had a visitor in the office, an old broker I have known for 25 years. Had appraisers on his mind and was concerned about all of the over priced property and jacked up appraisals. He had an auction sale Saturday, told the owner it was worth about $75,000, but the owner owned $100,000 due to a high appraisal and recent refinancing. It brought $72,000. This owner refinanced the property, got his cash out about a year ago, and has never made a payment since. How did this idiot appraise this property at that price my friend asked?
Then we got into this discussion of is appraising an art or a science. He says appraising is more art than science. I asked him: “Define art as it relates to appraising?” Here is his reply: “The science of appraising is when an appraiser goes out and justifies his price estimate based on numbers using scientific methods like math and statistics. The art part is when the appraiser has done it so many times on so many similar properties that he can just reach into his memory bank and pull out the answer.”
That is a good answer and I do that all of the time, but there is a problem with the answer. I know many Realtors that know property values like the back of their hand. They can tell you exactly what a property is worth. Problem is, they have no accountability because they cannot demonstrate the logical reasoning supporting their answer. I know some old appraisers that know selected property values like you wouldn’t believe; problem is that when they appraise something they have never seem before, their art system runs out of gas. I know because these guys call me every time their art won’t work. I think the answer is, there is an art to appraising real estate, but due to a lack of accountability, it ain’t worth much. Why? Because as my friend said, there is no market for correct price estimates, but there is a market for made to order artful appraisals. Without accountability, how do you know if the art is the truth or a lie? After all, lying is ar art too!