Opinions...

[CANative]

if you were forced at gunpoint to use one approach it would be an opinion of value. So why are the "indicators" from each of these approaches merely indicators instead of opinions (of value for instance)?

If you used the income capitalization method on a residential property with ag income it would be an opinion of value and would probably be low. But it's still an opinion of valu.

 

[George W Dodd]

Bill,

All three approaches are individually reconciled to determine a indicator of value; then all three indicators of value are reconciled to determine an opinion of value.
The final opinion of value may be based on one, two, or three of the indicators depending on the type of property, its market, its market participants, etc.

 

[incognito]

George states:

All three approaches are individually reconciled to determine a indicator of value; then all three indicators of value are reconciled to determine an opinion of value.

George, I have no problem with that, in fact, I agree completely. If I said something to imply otherwise, sorry...

The final opinion of value may be based on one, two, or three of the indicators depending on the type of property, its market, its market participants, etc.

And that would be called the "Final Reconciliation", right?

The Appraisal of Real Estate, 9th, p-561, described "reconciliation" as "the analysis of alternative conclusions to arrive at a final value estimate". I'm sure more contemporary versions substitute "estimate" with "opinion". Throughout the text, it refers to the results of each approach as "indications", and even refers to each comparable as providing an indication. But "estimate" (now referred to as "opinion") is only used as a result of the final reconciliation.

Does this make it so? No, but at least it is support for my idea...

 

[Peter LeQuire]

What George said.

Each of the approaches is reconciled, in which reconciliations the amount and quality of data is discussed and the reliability of each approach is addressed. Each of the approaches is further reconciled, at the end of which an opinion of value is expressed.

Seems to me that it is only a matter of semantics whether the result of each approach is called an "indication" or an "opinion:" I was taught that each of the approaches provides an indication of the value of the subject, and that these indications are reconciled, at the end of which process the appraiser states an opinion of the value of the property.

 

[Fred]

What percentage of appraisals use three approaches? Less than 20%? Less than 10%?

 

[Joyce Potts]

Having a debate, looking for input.


You have completed all 3 approaches to value, and are in the final reconciliation phase. Are your three values opinions of values by the various approaches or are they indicators of value and the only opinion of value is the final opinion.

My take is that all 3 are opinions of value. If we take, say the sales comparison approach, an indicator of value might be the adjusted sales prices of your comparable sales. Once you reconcile those, you have developed an opinion of value.

I know this may seem like semantics, but I am just curious as to your take on it. I have a guy taking me to task saying there is only one opinion, the rest are indicators.

Bill,

I think you have a valid point that this may be a semantics issue. But why is the distinction so important anyway?

Analysis - A seperating or breaking up of any whole into its parts, especially with an examination of these parts to find out their nature, proportion, function and interrelationship. Analysis is also a statement of the results of this process.

I see both sides, to be honest and not real sure why it really matters, unless we're going to go down the opinion vs. estimate road!! And you're the expert on that one!

I think all the approaches do, in fact, point to a value via that particular approach or methodology. Combined, analyzed and reconcilled all lead to the 'final' value opinion.

Keep us posted of any resolution, please.

 

[hastalavista]

Your original post states that this seems like "semantics". Maybe, maybe not, but let me take your opening quote and toss it back at you:

You have completed all 3 approaches to value, and are in the final reconciliation phase.

(my bold)

You say (and I would agree) that that used three approaches to value. "Approaches" as in "I'm not at the final value point yet, but am using these techniques to get me there."

My take is that all 3 are opinions of value.

They are opinions of value, but not final opinions; only opinions you are using to approach the final value.

I have a guy taking me to task saying there is only one opinion, the rest are indicators.

(my bold)

Semantically speaking, I would disagree with this absolute statement as written.
I'd say there are many opinions of value, three of which you have developed in your approach to a final value. Since, by definition, once a value is "final", there are no more values, your associate would be correct if he said "There is only one final opinion of value".

At least, that's how I see it.

 

[stefan olafson]

My take is there is an opinion made on each approach, based on the facts, then a final opinion of value stated in the Reconciliation. Unless you're a math wonk and think of the appraisal process as a science, you have to consider the art of creating each approach and your opinion will more than likely enter into the final indication of each value approach.

 

[Terrel L. Shields]

Correlate was the old term. Hodges in the last issue of App. Journal in a reprint from a prior offering from the early 90's would hotly dispute the notion that 3 approaches were 'appropriate'.

Ditto for Henry Babcock. Fredrick Babcock decades earlier espoused a variety of methodologies which according to Henry B was perverted into the so-called "Three Approaches to Value". Henry circa 30 yr ago, said that was wrong. There were 3 'processes' as he called them. First, he said that only one approach is needed or appropriate and the appraiser needs to decide which approach is most applicable to the situation. Only rarely would more than one process be applicable. Thus, in items where a clear market for same existed on a market basis, the market approach (Comparable Sales Approach) is the only way to value it. For income producing properties where a disconnect exists between the value and the actual cost, age, etc. of a building and value is based upon income, then the income approach is applicable...a sort of proxy for "Market" value. The Cost Approach is relegated to those properties which do not trade nor are income producing...the church, the library, etc.
There is usually only one method which yields the "right" answer. "Correlation" which used to be a tenant of the "Appraisal Process" is conspicously absent in recent texts.

Neither Babcock (H) nor Hodges believes the "Three Approaches" are valid in the context of doing all three as interrelated methods or self checking processes. It is an argument that makes more and more sense to me with time. Santora may convert me yet.

 

[JSmith43]

I didn't notice any posts that dealt with human variation. After all, if your name is Sybil, you might indeed have multiple opinions regardless the number of approaches to value utilized.

Additionally, what if you are someone that just can't make up his mind?

Speaking for myself, my value opinion might refine through the day. Thank goodness there is an agreed upon scope of work and I get to stop my research and analysis!

USPAP aside, most appraisers have an opinion of value generally about 5 minutes after working an order. It usually is refined after the inspection and further refined after looking at the comps. Those in a Fannie rut, may do some inspired thinking when playing with the grid and show genuine surprise, and possibly, remorse upon looking at the adjusted grid.

Some of the fringie cost disciples might actually capture an inspiration while performing an age/life gyration . During the day, I see a morphing of opinions.

I don't know if opinions are digital or analog, but I suspect, analog. Those of you that always come in at sales price make Fannie/Freddie think the opinions are digital.....but, whatever.

Bottom line though: I think appraisers sell one point value opinion to lenders the vast majority of the time. The final reconciled value opinion.