RCA Method Paper Published

[Tom D]

So sad rca. Just like lenders not reading our reports, i don't think anyone here has stayed up late reading your posts.

 

[RCA]

So sad rca. Just like lenders not reading our reports, i don't think anyone here has stayed up late reading your posts.

What makes you so sure?

I just announced the paper on this forum 10 days ago. And so far only on this forum. And a few close relatives. So far 152 downloads. Of course that is world wide. Of course, some have downloaded more than once. But I am not exactly advertising. It is not finished yet. But once I add a couple of sections, then it goes to a broader audience, although not so much appraisers. Academics and engineers -- and other analysts.

I am not really concerned, I am in it for the long haul. Current traditional appraisal methods of residential appraisals are already in their death throes. Like one of those YouTube video guys going through US cities with boarded up windows: Gone! .... Gone! .... Gone! ...

I was just reading today the latest 'Working RE": "FHFA'S Massive Expansion of Appraisal Waivers: What It Really Means. " Look at these things at face value. Tradtional appraisal is already pretty much dead, if you ask me.

Do you really think traditional appraisals on average are getting that much respect? No. Gone! .... Gone! ....

That's the reality.

But get this: there is soo... much money in residential real estate. A ton of investors trying to figure out what they can do. Beating their heads against the wall.

They are looking for ins.

And most appraisers are going to be, if not already, looking for outs.

I'm working on solutions as if there were no constraints on time and effort. If you can figure out a solution, even if it takes a lot of resources - there is a chance someone can figure out to get it done more efficiently, - and that is progress.

So, keep pounding the ground, if you want, I'm certainly done with GSE's. About the only requests I get nowadays are 5+ unit multi-family. But those don't pay so well either.

If I want to make money, not that I need to, then I'd rather do something else than GSE work.

.....

 

[RCA]

As far as the time it takes to do an RCA appraisal:

1. Most of the time is on the market area analysis - building the MARS model for estimating price.
2. Assuming you already have a good RCA program, then the rest of the task shouldn't take long.
3. Important: A MARS model is supposed to be robust. Therefore, it is by nature somewhat insensitive to minor changes. Unless there are some very eratic market changes underway, you shouldn't need to update a market area MARS model more than once a month. Soooo,
4. If you are doing N appraisals for a market area in a month, the time to develop a market area model for the month, is reduced to 1/N times the time it took to do it in the first place.
5. Once you have done one model for a market area, you will have studied it enough to get a. good understanding of it and rebuilding a new one with updated data should take less time.

So, the time it takes to do an RCA appraisal will decrease greatly if you have a good stream of appraisals coming in for each market area that you handle. What is a market area - well it would be of course of number of neighborhoods that share some common services, retail shopping malls and local regulations. I consider Pacifica, with a population of about 35,000 spread over about 10-12 neighborhoods to be a market area, especially when I have neighborhood designations. I might split it between north and south and consider it two market areas. But one works just fine. If you are doing 4 appraisal in the same market area every month, then I would estimate the time to do a good quality report to be about 2-3 days. The first time in a new market area, you would want to give yourself maybe 1-2 weeks, depending on how difficult you think it could be.

But the trick to making RCA work - is getting a sufficient stream of appraisal for a given market area. That will make all the difference.

ALSO, if you can't deal with MARS, that is a show stopper. An appraiser using RCA, needs to be able to read the documentation on the R "earth" package by Stephen Milborrow. Nowadays, you can use ChatGPT or Anthropic's Claude.AI to help you understand earth and MARS regression in general. But probably only 10% of appraisers are capable of dealing with MARS. So, if RCA takes hold, there will be only 1/10 the current number of appraisers available to use it, IMO.

 

[RCA]

As far as the time it takes to do an RCA appraisal:

1. Most of the time is on the market area analysis - building the MARS model for estimating price.
2. Assuming you already have a good RCA program, then the rest of the task shouldn't take long.
3. Important: A MARS model is supposed to be robust. Therefore, it is by nature somewhat insensitive to minor changes. Unless there are some very eratic market changes underway, you shouldn't need to update a market area MARS model more than once a month. Soooo,
4. If you are doing N appraisals for a market area in a month, the time to develop a market area model for the month, is reduced to 1/N times the time it took to do it in the first place.
5. Once you have done one model for a market area, you will have studied it enough to get a. good understanding of it and rebuilding a new one with updated data should take less time.

So, the time it takes to do an RCA appraisal will decrease greatly if you have a good stream of appraisals coming in for each market area that you handle. What is a market area - well it would be of course of number of neighborhoods that share some common services, retail shopping malls and local regulations. I consider Pacifica, with a population of about 35,000 spread over about 10-12 neighborhoods to be a market area, especially when I have neighborhood designations. I might split it between north and south and consider it two market areas. But one works just fine. If you are doing 4 appraisal in the same market area every month, then I would estimate the time to do a good quality report to be about 2-3 days. The first time in a new market area, you would want to give yourself maybe 1-2 weeks, depending on how difficult you think it could be.

But the trick to making RCA work - is getting a sufficient stream of appraisal for a given market area. That will make all the difference.

ALSO, if you can't deal with MARS, that is a show stopper. An appraiser using RCA, needs to be able to read the documentation on the R "earth" package by Stephen Milborrow. Nowadays, you can use ChatGPT or Anthropic's Claude.AI to help you understand earth and MARS regression in general. But probably only 10% of appraisers are capable of dealing with MARS. So, if RCA takes hold, there will be only 1/10 the current number of appraisers available to use it, IMO.

I should mention, there are companies already planning to provide models, e.g. Bradford Technologies Night Hawk. To be noted:

1. Who is going to take responsibility for models created that are crucially defective? It is very unlikely any software company would take on that liability. Software companies are in the habit of not taking any responsibility for their product, - other than to fix selected problems. - It will be the appraiser with his insurance. If the appraiser is pulled into court, can he even rely on the originator of the model for help? Probably not, because that could result in an extremely large liability for the model provider as well. The appraiser will most likely have to take responsibility for the legitimacy of a model created by a third source. Will insurance companies underwrite insurance for appraisers not able to defend their own product, i.e. the report? Eventually, if there are problems, likely not.

2. There are always unforeseen circumstances that can come up with unexpected property types, mistakes and errors, dramatic market changes and so on, that mean that an appraiser has to be ready to adapt to the unexpected in a short time. How often would this occur? Well it depends on how competent the appraiser is and luck. An appraiser needs to be able to correct or modify an existing model, on the fly. He can't rely on a third party. I don't see how that can work. Some new legal framework would have to be developed for model providers that "might" work.