How Many Have Figured Out

[J Grant]

Had a CE instructor say one time, in regards to arriving at values, that we as appraisers, "measure with a micrometer, mark it with chalk and cut it with a chainsaw".

I think it;s the other way around. We start off broad ( the chainsaw) looking at lots of data, then eliminate data and focus on a smaller group of comps we extensively analyze ( the chalk) then arrive at a point value ( the micrometer)

 

[Carnivore]

The key to remember is that the market value opinion is filtered through the actions of the "typically motivated buyer" in the MV definition, and THEY ( the hypothetical buyer/seller in MV definition) assume the same motivations and way of acting- typically motivated, prudently, acting in what they believe their own best interest, well informed or well advised. Do "real" buyers and sellers always behave so neatly? No. But that's why we do an appraisal- it's a hypothetical model of "what it",,,,what "should" the property bring if buyer and seller were typically motivated ( and behaved with all the other stipulations in the MV definition we are using)

That levels the playing field for our lack of knowing exactly 'why" each buyer made the decision they did, or the fact that their decisions can be skewed by atypical motivations, not being well informed, influence of special terms, etc.

I don't disagree with you. George did raise an interesting thought. Sometime in spite of their own best interest they are influenced by the agent. We like to think that Realtor's listen to their potential buyer desires. Good brokers qualify their buyers not for the buyers best interest but for their own best interest. Seems pointless to show a buyer a house that rises to the level of their dream home when they can only afford something far less than their expectations. So it becomes a matter of compromise. I dare say that most sale are financed to the max. possible. Lot's of good reasons to do that.

I am just thinking about the whole thread. It is interesting to say the least.

 

[J Grant]

I am sweating my way through the kind of report Brett references, very complex, very high $ ocean front house- have not done one in a while...so far have spent 3 days gathering data and developing my adjustments, with land value critical since it is a huge value factor. So, after 3 days I am finally able to enter the comps on the grid. The sales prices range from $4,900,000 to $9,000,000 . I am not happy with the spread but this is a limited market ( search back 3 years for comps). My adjusted range so far goes from $6,900,000 to $7,3000,000. Which is pretty tight considering what I was working with. Fairly easy at this point to see where the opinion will be.

Would Brett's or similar program have saved me time? Perhaps . But looks like it would take me years to get proficient enough in math, statistics and regression to understand it. USPAP says we have to understand these programs, not just use them ( though am sure there are skippies data dumping from RA hoping no one question results).

Having spent 3 days developing my adjustments, I now feel confident in them and like I can explain and defend them. Would I feel that way about a data program having developed them? The program would have to be explainable to ME how it developed results. Steve Jobs did not become a billionaire because he developed programming for an Iphone, rather because he made an Iphone extremely simple to use. for a consumer -swipe finger over a screen. But a program for an appraiser has to go beyond that, because we have to understand how results were derived in order to be able to explain it (to ourselves and readers) I have not yet seen an RA or stat program that does that.

A challenge with complex/high end is typically the lender client orders 2 different appraisals.If the other appraiser's value is within a reasonable range difference from mine typically no problem. But if their MVO is substantially higher or lower, the torture can go on for days rebutting, explaining, etc. I have no control over another appraiser's report, nor they on mine.

 

[Artemis Fowl]

Never did hear if I answered right (or reasonably close enough). Bert?

 

[RCA]

View attachment 37173

Encinitas, California: Boat Houses
Two houses on a street along the beach look like they're ready to shove off into the surf. Built in 1928 by Miles Kellogg using recycled materials. The Encinitas Boathouses were purchased in 2008 by a non-profit for permanent preservation.

https://www.roadsideamerica.com/tip/10204

Bert, see above. Walk me through your method that you use for complex properties in the Bay Area and apply it to the Boat Houses.

I don't think there is anything much I can't appraise. However, this is one of those cases, when I'm pretty sure I would have to step outside of the sales comparison approach or leverage the most similar property around - wherever that is. Surely somewhere up there someone rents boathouses on water .... for starters.

The answer to your question is that I would have to devise a method for valuing this; i.e. non of my existing methods would likely work. - Although there are certainly parallels.

Hubbard's definition of measurement is "A quantitatively expressed reduction of uncertainty based on one or more observations." ( Hubbard, Douglas W.. How to Measure Anything: Finding the Value of Intangibles in Business (p. 31). Wiley. Kindle Edition. )

That has always been my attitude towards appraisal, which is the measurement of what someone would pay for some type of ownership or use of some type of property under a set of conditions. The goal is to reduce the uncertainty of measurement, the uncertainty of the final opinion of value.

In this particular case, your opinion of value may not be all that accurate, but should nonetheless be a big improvement over nothing.

 

[DWiley]

In this particular case, your opinion of value may not be all that accurate, but should nonetheless be a big improvement over nothing.

What constitutes an "accurate" opinion??

 

[Randolph Kinney]

The goal is to reduce the uncertainty of measurement, the uncertainty of the final opinion of value.

What happened to your method for boosting R2 for complex properties?

Real estate markets and using any model to determine value for complex properties is characterized by incomplete information.

 

[RCA]

What constitutes an "accurate" opinion??

Fundamentally, appraisers, among others suffer from tunnel vision. A guy picks of a rifle to do some shooting practice. He misses the target every time. Someone else can say, "Your sure not very accurate with a rifle". That kind of implies most other people would be more accurate shooting the same target - and we might presume the target is 50 yards away or thereabouts. If the target is 1000 yards away, you might way "Your accuracy at 1000 yards is not very good." In the latter case, there is really is no implication, not many people can shoot that accurately at 1000 yards. Of course, that depends on the size of the target. So you can qualify the whole thing: "When it comes to shooting an 2x2 foot target at 1000 yards you're accuracy is terrible." So, in this case what constitutes accuracy? Certainly you can answer that question yourself. So, that boat thing is kind of like a target the size of an 2x2 foot target 1000 yards off. What ever value you come up with with a given exposure time, if it means anything at all, you wouldn't want to bet your life on.

That is to say: "My opinion of value on those two boats is $5,000 with an exposure time of 100 years." You could bet your life on it for sure. But the statement is meaningless. So now, now the question is what constitutes "meaningless"? Someone in the crowd yells: "When it is from an appraiser who thinks buyers make their decisions the same way appraisers do!" - And this is particularly poignant when you consider that most appraisers, at least those in California, are too poor to buy a house and have never been through the process. .... Sigh

And now that brings up the next question: What percentage of residential appraisers in California OWN homes or condos? Now that is a good exercise in measurement. How would you go about figuring this out? I would suggest using statistics to save yourself some time. How many observations do you need for a good estimate? Say you decide all you need is 30 random observations. You decide to choose 30 Certified Residential Appraisers at random and figure out if they own homes or condos. Is there a reliable way to do that?

My rough guess, for what it is worth is that, in California, somewhere over 50% (probably much higher) of commercial appraisers who have been in the business for over 10 years, own homes or condos and 20-30% of certified residential appraisers in the business for over 15 years own homes or condos. It would be interesting to see how far off I am.

 

[RCA]

What happened to your method for boosting R2 for complex properties?

Real estate markets and using any model to determine value for complex properties is characterized by incomplete information.

It's not my method. It is similar in the sense that I analyze the residuals. I was having an email discussion with one of the statisticians at Salford Systems last week and tried to explain the method I was using. Of course he doesn't know much about appraisal. He misunderstood me and thought I was in fact talking about boosting .... Anyway another story.

The math seems difficult and it is probably impossible for many. For others it is step, step, push, push, patience - and they eventually understand it. But you need to start at the beginning and work forward on the concepts. Rome wasn't built in a day.

This particular book I recommended, does not require a graduate degree in math to understand, and it does a pretty good job of explaining things for someone who has had a year of undergrad calculus, linear algebra and statistics (each). So, it is a gem compared to the other books I've come across.

As to your statement about incomplete information, - of course, that problem abounds every where in statistics. My son-in-law, who does research for petroleum engineering, does a lot of data mining - and is always complaining to me about how much work they have to spend up front cleaning data.

- My MLS data is not bad at all, if only they wouldn't strip out the GPS data and a few other things. - I mean I have 5000 fields, with the lookups: Ocean View, Harbor View, View of the Marina, and so on. While I can access the San Diego MLS through mine, I don't think they have gotten around to pulling that system into the MLS feed. But I understand they are in the process of doing it. But I do get all of LA and many other areas.

But, the data keeps getting better.

 

[Randolph Kinney]

As to your statement about incomplete information, - of course, that problem abounds every where in statistics.

Realizing that the price transaction in real estate markets involve buyer, seller, agents, appraisers or a combination of all that can be involved in the transactions. This accounts for price dispersion on transactions of model matches.

These parties to the transaction are the biggest variable of all variables and constitutes market imperfections. It is assumed in all transactions there is a competitive market with buyer and seller equally motivated and equally knowledgeable of all the facts in the market.

Participants in real estate markets often have incomplete information about the attributes of the purchase, and decisions to buy and sell must often be made based on this partial knowledge. Real estate markets are not homogeneous, they are heterogeneous. Transactions are decentralized, and market prices are the outcome of pairwise negotiations. The completed transactions are not timely and therefore models are missing completeness of current data as well as incomplete information on parametric as well as non-parametric data.

R2 is not the end all to be all in the value determination.