How Many Have Figured Out

[George Hatch]

Data qualification is where its at, regardless of which valuation model you use. The 300-unit subdivision scenario with few variations among the individual datapoints simplifies that task to the point that any valuation model will work. So simple even a monkey and a dartboard will work.

Conversely, the use of raw and unqualified data complicates the task; and using larger quantities of raw and unqualified data is only incrementally better.

We already have a ton of experience using an appraisal valuation model (which is what the Fannie grids are), and that model requires the appraiser to spend a considerable amount of time and effort to qualify the data they're using. If you had to break the amount of "appraisal development" time by activity, the analyses/comparisons would probably amount to less than 5% of the total. The other 95% is split between data indentification and qualification. THAT's where most of the appraising occurs, not in the last 5 minutes when we're refining the value range indicated by the most direct comparables that we're presenting. If we made zero adjustments to those comparables we could still emulate what the buyers and sellers are doing in real life because that's what they do.

So really, what the quants are trying to do is to refine the adding machine part of the analysis, which IRL is usually the fastest and simplest step in our process.

It doesn't matter how much time/effort you spend on refining the manner in which you develop and apply line-item adjustments because all that happens with a less-than-optimal combination of adjustments is that the appraiser ends up doing more qualitative instead of less qualitative in their final reconciliation.

ZAIO had a plan where the appraiser nominally qualified all their data prior to using any of it in their AVM. The fundamental concept is certainly valid but the manner in which they were doing it was inefficient. If they had limited their pre-qualification protocols to the properties being listed in the MLS they wouldn't have been wasting so much time/effort.

 

[George Hatch]

While we're at it, I question the wisdom of attempting to get so far out in front of what the market participants are doing that we think we're smarter than the market.

I've said this for years: the primary attribute that we sell as appraisers is not the number on the bottom line of the appraisal report, but the role of the appraiser as the objective disinterested party. There's nothing special about someone having a number. Everyone and their dog has a number, and many of those numbers are just as competently developed as that of any appraiser. What makes our conclusions marketable is the trust our users have that - in our role as the appraiser - we won't lie to them or shade the number in favor of the deal; it's not the accurate-to-the-dollar precision of the final value conclusion.

 

[J Grant]

I personally find the small, low end properties can be hard to appraise...having the opposite problem of the big ones. The high value properties might be a problem because of large spreads in the adjustments, whereas with the small ones, it's such close margins. Making a "wrong" adjustment on a 100k / 800 sf property can throw the whole value off.

 

[LifetimeStudent]

J

How many of you actually have figured out, i.e. understand, how I adjust comps?

I consider the method very clever, if I don't say so myself, on par with Eratosthenes indirect measurement of the circumference of the earth 2300+/- years ago.

I was discussing this with one of the statisticians over at Salford Systems, and I'm not sure he understands it yet. But, then he is not an appraiser.

The clue is I use statistics to predict the value contribution of the tangibles, subtract if from the actual sale price to get an indirect measure of the intangibles. I do this for maybe 300 recent sales in a neighborhood. I rank the residuals form lowest to highest and give them scores 0.0-10.0 in 0.5 increments reflect the percentage of residuals of lower value, using an Excel macro, then replace the macros with the actual scores (so I can re-sort and they won't change), then create a function that maps the scores to the residuals and thus, all comps in your grid have the adjustments for tangibles based on the regression model, and a total adjustment for all intangibles, based on the difference between their residual score and the score the appraiser gives the subject for percentage ranking of the subject compared to all of the sales in the neighborhood. You can split that score adjustment however you want, but it doesn't change the total adjustment for the intangibles.

The method I use, can be used as a general method for measuring the value of almost any object with both tangible and intangible features.

In other words it is an exact measure of the total worth of the intangible features of a sales comparable; but done in such a way that the appraiser has things set up to do a fairly precise and meaningful estimate of the value for the subject property's intangible features. And, simple math says, you you can split those total adjustments up however you want between the condition, quality of construction, functional utility, view, aesthetic appeal - it won't make any different on the total adjustment to the subject.

Plenty of clues. See if you can understand the method.

Just remember, in anything that you do in any appraisal, in the event that your appraisal is reviewed you will be accountable for what your peers would do under the same circumstance. Is your methodology accepted practice? Good luck, I seriously doubt you could get past any Daubert-, Robinson- or Frye-type motions if you ever ended up in court.

USPAP Page 13 Lines 378-387

SCOPE OF WORK ACCEPTABILITY

The scope of work must include the research and analyses that are necessary to develop credible
assignment results.

Comment
: The scope of work is acceptable when it meets or exceeds:
• the expectations of parties who are regularly intended users for similar assignments; and
• what an appraiser’s peers’ actions would be in performing the same or a similar assignment.

Determining the scope of work is an ongoing process in an assignment. Information or conditions
discovered during the course of an assignment might cause the appraiser to reconsider the scope of work.

An appraiser must be prepared to support the decision to exclude any investigation, information, method, or
technique that would appear relevant to the client, another intended user
, or the appraiser’s peers.

 

[NachoPerito]

Bert, you aren't coming off very well by saying you have the cure-all for comp adjustments, but not supplying your detailed methods or proof that your method is superior. And, at the same time, fueling your own superiority by noting other's inability to grasp the concept. I would suggest the Appraisal Journal for something like this. That way you can lay out your findings.

 

[George Hatch]

Yeah, but in counterpoint we can't get to a recognized method or technique without first considering and trying out the various alternatives.

I don't for one second question the virtues of using the technology to enable the appraiser to do more; what I question is the utility of substituting quantity for quality WRT relevant comparable data. I've seen far too many examples where simply throwing more of the less-relevant data at a problem only detracts from the analysis rather than adding to it.

I also question where lies the point of diminishing returns when it comes to precision. If a sales contract is at $100K and the results of our model is spectacular and iron-clad at $99k then how much more "meaningful to the intended users" is that conclusion to their decision than saying that the $100k can also be considered a reasonable expression of MV within this market segment?

 

[George Hatch]

Bert, you aren't coming off very well by saying you have the cure-all for comp adjustments, but not supplying your detailed methods or proof that your method is superior. And, at the same time, fueling your own superiority by noting other's inability to grasp the concept. I would suggest the Appraisal Journal for something like this. That way you can lay out your findings.

I may be wrong, but think he's just trying to get people to think and consider the possible alternatives. Make us work for the idea a little so that we'll value the answer more highly when he provides it. People don't tend to value as highly things that are just given to them.

 

[LifetimeStudent]

Bert, you aren't coming off very well by saying you have the cure-all for comp adjustments, but not supplying your detailed methods or proof that your method is superior. And, at the same time, fueling your own superiority by noting other's inability to grasp the concept. I would suggest the Appraisal Journal for something like this. That way you can lay out your findings.

Bert, you do know that the real estate market is imperfect, right? Sometimes the people down the street will pay extra because

Yeah, but in counterpoint we can't get to a recognized method or technique without first considering and trying out the various alternatives.

I don't for one second question the virtues of using the technology to enable the appraiser to do more; what I question is the utility of substituting quantity for quality WRT relevant comparable data. I've seen far too many examples where simply throwing more of the less-relevant data at a problem only detracts from the analysis rather than adding to it.

I also question where lies the point of diminishing returns when it comes to precision. If a sales contract is at $100K and the results of our model is spectacular and iron-clad at $99k then how much more "meaningful to the intended users" is that conclusion to their decision than saying that the $100k can also be considered a reasonable expression of MV within this market segment?

First, the real estate market is imperfect, people do things for different reasons. The people who bought the house next door paid an extra $25K because their dad lives across the street. The people up the block got a good deal because the lady was getting a divorce and splitting the proceeds with her ex-husband.

Second, we have published paper after published paper in the Lum Library that states that statistics aren't everything they are cracked up to be.

 

[LifetimeStudent]

I may be wrong, but think he's just trying to get people to think and consider the possible alternatives. Make us work for the idea a little so that we'll value the answer more highly when he provides it. People don't tend to value as highly things that are just given to them.

That is not what I got out of his post. He seems to bragging that he is using methodology that is better than what the rest of use, and then that we are too stupid to understand it. It happens all the time, someone sees the superiority in using statistics and spends all their time in the office. The answer to all our appraisal problems is on the other of the phone with the brokers, buyers, sellers, and other market participants, not in a computer.

 

[George Hatch]

I think most of us know appraisers well enough to understand the hazards of hype.

BTW, in response to the OP's question: "How many of you actually have figured out, i.e. understand, how I adjust comps? " I will just respond - not me.