Third Exposure for USPAP changes expected

[David C. Johnson]

<span style='color:darkblue'>OK, since no one wants to play with me (yep, same problem as a kid ) ...

Here's my answer to my own trick question:

Since we are to emulate the market, our market valuations are to be based on what the market says and does (i.e., buyers & sellers) -- and this is still the case whether we're convinced the market is either very right, or very wrong.

If our own carefully rechecked celestial tracking calculations indicate a direct hit to the roof top of the million and one dollar mansion at 333 Meteorite Lane next month, but the NASA folks and others say it just ain't happening, that property be worth a cool million (& $1) for the purposes of this month's appraisal. Period. Regardless of whether it's a soon to be smoldering pile of ruble.

Same deal in projecting rent rates and expenses, etc., for, say, a DCF on an income producing property (where an instructor of two have not always agreed with me on this thru the years). But the concept is viable for each and every appraisal assignment we do. That which we personally anticipate is irrelevant; that which we conclude, based on the evidence, that is actually anticipated in/by the market, is very relevant.

Of course, much more often than not we're only left with a distinction without a difference. We often "agree" with the market.

It is a conceptual thing.

Just like Matched Pair Analysis (MPA)

I contend that MPA is similarly a conceptual thing. While it's rarely very practical in and of itself in appraising, MPA teaches us how to think in logical terms about the adjustment process. This is where its considerable value lies.

Of course, Austin's methods, for instance, of statistical analysis, are just very sophisticated forms MPA -- to the point that it is very practical.

Just my opinion.

dcj</span>

 

[Austin]

David: There are a number of problems with matched pairs. The 1st is that the pairs are not statistically significant. Second: When you add value factors they tend to show covariance, which means their value contribution changes in different numbers and mixtures of factors, which can only be dealt with statistically. In my opinion, MPA gives the student of appraising the wrong picture of how a marketing grid actually works. In my experience, it doesn’t work as advertised. Use the wrong sequence of adjustments for example and you start off wrong and things get worse from there. The sequence of adjustments comes from the market according to the AI. Problem is, AI don’t have a procedure for extracting the correct sequence. Fortunately, I do. With the wrong sequence of adjustments MPA only measures random variance and covariance of which there is an increasing supply of late. I think we are in agreement on DCF to a point. Again random variance sticks its ugly head into the picture in the form of interest and equity rate variance. To deal with that problem I have devised a new statistical DCF method by estimating a most probable price area illustrated graphically. By using a range of expense ratios and thus deriving a range of NOI’s then estimating a range of indicated prices at a range of cap rates and then graphing the cap rates vs. the indicated prices you will find that cap rates are the critical factor and not NOI. With interest rate variance on the order of 2 to 4% and equity rates a total unknown, about all we can hope for is a value range under any foreseeable scenario. Or so it would seem to me. Wouldn’t you agree?

PS: Is Tom back yet? Isn’t it about time for the inquisition to announce what we all already know, i.e., a charge is as good as a conviction in the Peoples Republic of NC.

 

[David C. Johnson]

Got to go right now, but I will have more to say later. I did want to say that I will call tomorrow to see if I can find out about Tom.

Probably decided to stay on the boat!

dcj

 

[David C. Johnson]

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

Yes, I read your post carefully. I certainly do agree.

Again, at some point you should consider an article -- maybe for the "Appraisal Journal" -- probably have to have someone else turn it in and take credit for it though (so what). That's how it works in academia, you know. Well, not always. I was just reading one of the Commercial Forum Wars (damn, those guys are good -- every bit as mean as you and me ). You're a baseball fan too, right? Ted Williams and his crew would have let you publish (see the following PS -- yes, I am aware you have no such interest, but still, it might be a meaningful contribution, Ackerson's was...). A lot of professional athletes are treated a lot like kids by thoes who control and manage them (in a way, the same way residential appraisers are often treated these days -- but for baseball players in particular, it's probably often deserved). Ted was not the typical player.
________

As sorry a rap as the term "fuzzy logic" has recently gotten (as greatly misunderstood or just intentionally abused -- but regardless, now terminally contaminated via the political arena), I will use the term "parallel processing" instead. This is arguably the manner our minds work when computing (according to those who lay claim to knowing more about it than most of the rest of us), including the computing of appraised values. What some call "art" in appraising, others (e.g., neuroscientist, etc.) would refer to as fuzzy logic or parallel processing. "Intuition" is thus mainly or wholly a function of the interaction of neurons (and hormones, and state of nutrition...) according to some. If there is any validity to this point of view (there's probably some) then the following overly simplistic and unrealistic MPA example is key programing for the computing process -- as the quality and expanse of the example makes little difference to the educated and properly functioning human mind (according to theory).

Two new, absolutely identical houses (same color, same view, same sticking kitchen door, etc.) situated next door to each other sell on the same day in identical circumstances including interest rates (i.e., credit histories, negotiating strengths of the two buyers and two lenders, down-payment, etc.). However, one has a rear deck and the other does not. The one with the deck sells for $103,500 and the one without sells for $100,000. What is the contribution of the deck? "Statistically" speaking, $3,500. All other competing, extraneous, correlated, etc., factors, in the real world of the buying and the selling and the appraising of real estate are compensated and adjusted for by the incredible computing power of the experienced real estate mind (or inexperienced mind in the case of many or most buyers and sellers we "study" (i.e., emulate) -- now there's one Serious Source of "Random Variance" for us -- hey, but wait until you get turned onto quantum mechanics -- you'll wish you had the buyers and sellers back!). Regardless, I think I would rather be explaining your position to the judge than the neuroscientists'...

dcj

__________________

PS. A recent science board post about Ted Williams:

Message #19778
From: Appraisco@aol.com
Date: Mon, 12 Aug 2002 06:16:35 EDT
Subject: Ted Williams Had Nobel Laureate Buddies

A friend of mine, a retired NC State University professor, got a book review
to me that was recently published in "The New Yorker." I ordered from
Amazon, and am currently reading: "HYDROGEN The Essential Element," by John
S. Rigden, copyright 2002 by the President and Fellows of Harvard College
(Harvard University Press). Good book on the history of world physics
advancements with particular attention given to contributions enabled by
hydrogen, the smallest and "simplest" element. John S. Rigden is the Director
of Special Projects at the American Institute of Physics. Getting to page 178
last night, I found some supporting documentation for the contention that Ted
Williams was indeed a man of science.

"The faith that many people place in God, we place in science
and other human endeavors." -- John Henry & Claudia Williams

From "HYDROGEN":

Such was the character of Edward M. Purcell. How
many scientists, one might ask, would delay publication
of results so that others could share in the glory?
Purcell was an unusual physicist, displaying none of the
ruthlessness often found in men and women of ambition.
Instead, kindness and consideration for others emanated
from him. "Doc" Ewen also had to have been part of the
decision to share the honor with the Dutch and the
Australians. Ewen was a little more senior than the
typical graduate student since he had served in the
Navy during World War II. In the Navy, "Doc" was an
instructor of celestial navigation. One of his students was
Ted Williams, the great Boston Red Sox baseball player,
who was a Navy pilot. During the Purcell-Ewen experiment,
Ted Williams visited the Harvard physics laboratory to see
"Doc" and to see the experiment first hand. As Purcell
later reported, the famous physicists at Harvard "were all
aflutter" with the great Ted Williams in their midst.
Whether it was his maturity, his service in the Navy, or the
influence of Purcell, Ewen also deserves credit for sharing
the honor of the discovery.

Both Purcell and Ewen knew their discovery was very
important. One indication of its importance is that Purcell
and Ewen have been incorrectly credited with winning the
Nobel Prize for this work. (Purcell won the prize for his
discovery of NMR.) No one can say, but it is possible their
unselfish act of sharing the discovery with the other two
laboratories deprived them of added honor. It is interesting
to note that a year before he died, Purcell confided to one
of his most illustrious students, Nicolaas Bloembergen, that
he regarded his contributions to radio astronomy to be at
least as significant as his discovery of nuclear magnetic
resonance.* The discovery of the hydrogen 21-cm line
opened possibilities for gaining new knowledge about our
galactic neighborhood as well as the universe far from us --
detailed and surprising knowledge.

* Nicolaas Bloembergen, "Edward M. Purcell (1912-1997)," Nature 386, 662
(1997).

Regards,

DC Johnson, Raleigh

PS. It's my guess that an added significance to the name 21st Century
Medicine (21CM) is likely not lost on physicist Brian Wowk (i.e., the
notorious 21-cm wavelength of the hydrogen spectrum created via photons
emitted due to the atom's sole electron making a particular energy state /
orbit transition). It sure would have been lost on me without the book!</span>

 

[Austin]

David: As to your comments on parallel logic: There are at least two logical methods to find the correct answer. The first method is by using science to prove what the answer is. The second, often called art or parallel logic is to prove what is correct my eliminating all of the possibilities we know that are wrong. In other words, we prove ‘what it is’ directly or we prove what it is indirectly by proving ‘what it is not.’ Another related method I found using regression methods is the mathematical iteration. You can work long complex equations or you can design a system using iterations and zero in on the correct answer by watching the graphical results as the pattern forms with each additional number tried. By mapping the progression you also eliminate a lot of un-necessary work while at the same time proving your answer. When the variance of the data sets results is a flat trend line, you have defined the mathematically perfect definition of a correctly adjusted marketing grid, assuming you used the correct sequence of adjustments.
As to you comment that some put their faith in God and some put their faith in science, I think they have their heads on backwards. Did you know that up until about the 1930’s that 90% of all scientific discoveries were made by Christian scientists? Why you ax? Because they were using science to learn more about God the author of all order and reason. The reason the World is in such chaos and turmoil now is that the present ruling elite was brain washed in Liberal ideas that teach that science is exclusive of God which is like saying: “Now that we have the information we want, the hell with the person that authored it. We will take full credit for his work and then we will be gods.” Problem is, these elitists Liberal self proclaimed gods are about to find out the limitations on their powers to control events, then when the bottom falls out they will be calling for God to get us out of this mess.

 

[David C. Johnson]

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

What do you consider to be the correct sequence? (When you have time to get into it.) If you have already written on this -- point me to the right post.
___________________

"Because they were using science to learn
more about God the author of all order and
reason."

Good thought.

__________________

"Did you know that up until about the 1930’s that 90%
of all scientific discoveries were made by Christian
scientists?"

I'm kinda glad you did not capitalize the last word of that sentence right above. (I did have to read it twice.) Yep, a lot of them were -- and I would guess the majority may have been depending on the criteria for deciding what constitutes a "scientific discovery." Quite a few were Jewish, too, for some of the most momentous discoveries. Little know fact (that I learned from that book -- well, it was little known to me anyway), is that at one relatively short time in his youth, Albert Einstein was real into it. Later on his dad gave him the compass that intrigued him into science (a product of God). He may have been Christian during the later part of his life, but no doubt he was a believer in God. I have read a few of his quotes.

___________________


"The reason the World is in such chaos and turmoil now
is that the present ruling elite was brain washed in
Liberal ideas that teach that science..."


Austin, you know I never get into any discussions with political overtones whatsoever...

(yeah, that's the ticket) :lol:

___________________

dcj</span>

 

[Austin]

David: The correct sequence of adjustments is the cost approach in reverse. Start in the order of the largest adjustments such as basements finish and unfinished, garages, porches, fireplaces, etc., then it gets complicated. You make a very scientific size adjustment (which includes quality of construction that is covariant with size and can't be separated) using iterations, which essentially treats all remaining variables including size/quality of construction as a lump sum and adjust until the slope of the graph of GLA vs. sale price has a zero slope. This is the cost approach in reverse. How many cost approaches have you even seen that start off with a time adjustment, financing factor adjustment, design and appeal factor, location factor, etc. These are residual forces and you can’t possibly suspect they are even in existence until you have accounted for the physical difference. You have to monitor the results after each adjustment. Using this method you will learn more about the subject and the market by using sales that are not so comparable if you use one inferior, one most similar, and one clearly superior comp. Then you can gauge the gravity of the difference and have a better feel for where the subject’s true price lies. If you use the wrong sequence of adjustments you get further from the correct answer instead of closer to it. I worked the sales comparison example in the AI’s “12th Edition of The Appraisal of Real Estate” and it is wrong based on their own definition. They say that the sequence of adjustments comes from the market then turn around and use out of sequence adjustments in their demonstration. I started to write an article on the subject but my experience is that “he who goes against conventional thinking is a heretic and gets called names." If you want a demonstration, go over to the watercooler and disagree with some of the more Liberal thinkers. So I have learned to keep my opinions to myself unless some one is nice enough to ask as you just did.
As to my comment about Christian scientists making 90% of scientific studies, I learned that from Rabbi Daniel Lapman in a lecture.
Name me a subject that does not have political overtones this day and time. I would be interested in hearing what that subject is.

 

[Mike Garrett RAA]

The Appraisal Foundation is funded by the registery fees, sales of printed materials (is, USPAP books) and certain grants. Most who serve on either the ASB (standards) or ABQ (qualifications) do so by appointment and are, in fact, unpaid.

There is no 3rd draft at this time.

63% who sit for the USPAP Instructor's examination...pass.

 

[David C. Johnson]

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

Since I do not know if you are still in this thread since Austin and I helped divert it a bit, I will "Private Message" you in just a minute to alert you. If you ever communicate with Charles Clark from Georgia, please consider passing the following thoughts along to him.

(BTW, I think Austin and I just realized that there was not near enough of contention in the thread, so we threw in Religion and Politics, beat-up conventional & accepted appraisal theory and techniques a bit, and also slapped the AI for good measure.)

As you're aware, I am in agreement with George Hatch for where the best outcome lies for the good of the most people "and institutions" in regard to recent proposals. However, I want you to know that I believe your quest to have the relevant real estate experience of Realtors recognized makes sense. You will not hear any noise from me, or probably from Tom Hildebrandt, and maybe Brad Ellis and others, if there was some type of exemption (partial or full perhaps for the "tenured") to the proposed additional formal education requirements for new entries into the profession. I'm not sure how it would be structured, but I would guess it could be equitably accomplished. Actually, when you think about it, such a situation might be close to ideal for the few Realtors who actually might be interested in making the jump. Here's why:

After much consideration, I see no evidence whatsoever that there is likely to be a shortage of residential real estate appraisers in the foreseeable future. That just cannot be in the cards. So, with the "entry bar" raised, fewer "new starts" will be entering appraising "off the streets," and therefore there may actually exist an economic position in the profession for the "undegreed," but otherwise well qualified, Realtor to move into appraising in the near term or in the future.

Do you see what I mean? I hope NAR representatives will give it some serious thought. If there is a hole in this logic, it completely escapes me.

One other thing I would like to mention to both you and the Florida Board, and also, to Charles Clark and the Georgia Board. It's been my understanding for many years that both of your state appraisal boards have performed well above average for the country. Its my guess that the fact that both states have historically been unusually strong in formal real estate education (including appraisal education) at the graduate and post graduate levels in some of your state universities, probably does show. Your two states may be near exemplary in performance regarding real estate enlightenment, and if all the rest were as reasonable and competent, the ASC and AQB just might well be in serious jeopardy of "having served their purpose." For example, picture the absurdity of, say, North Carolina and New York having gotten together to push the issue instead of Georgia and Florida!

Even now, neither you nor Charles -- in my opinion -- could fully understand how disruptive and destructive some of the country's appraisal boards have been. And many of them have no clue about it at all. Regardless how things shake out, its good to have you two around.

Regards,

David C. Johnson, APPRAISCO, Owner
NC State-Certified General R.E. Appraiser

PS. Mike, how did we ever get the idea that there was another draft? Will there be another one? Frank, do you know?</span>

 

[Austin]

David: The Feds are giving serious consideration to instituting another draft, but there is a slight prloblem! Under existing law, thanks to the NAG feminist crowd, they can't legally do so without drafting women too. I don't know how they have gotten away with just registering males anyway. Draft one man and somebody will file a suite in a NY minute. I agree with it 100%. Women should not be denied the priviledge of being drafted and serving their country. Equality all of the way I say. You can't just cherry pick which priviledges you want that come with equality, there responsibilieies and obligations attached to those priviledges. "Oh what a tanagled webb we weave when we try to deceive."