Some form of Universal Valuation Standards (UVS)© appears to be one way to resolve the multiple issues we see today.
Our most recent series focused on the obsolescence of the traditional appraisal process. The primary cause of the obsolescence is the shift from subjective onesey-threesy methods of picking comps – to immediate electronic download of “all sales data as are available.”
Appraisal, in its traditional “accepted” form, is vulnerable to bias – both analytic bias and personal bias. The four-step process itself is simple:
- Define the problem (subject and assumptions).
- Identify the most relevant (comparable) data
- Apply predictive indicators (adjustments) predictor adjustments.
- Communicate analytic results (or an “opinion”).
AVMs (Automated Valuation Models) resist individual bias, but may tend to perpetuate systemic bias, due to the hard-coded underlying algorithms. The basic four-step process is identical.
Other means also follow the same four-step valuation process: problem, data, indicators, and delivery. These may include evaluations, desktops, waivers, drive-by, or broker-opinion, or other exempted valuations. All modes of valuations follow the same four-step process!
The only difference is that each simply does a more careful or less careful analysis. Sometimes called “quality.” Better quality involves each of the above four steps. Universal
Quality requires better gathering of information about the problem, the subject property, the market segment, predictors (adjustments), and auditable delivery. This can entail several components.
- Problem delineation, including level depth/extent of subject viewing, inspection, records research, and optimal use; (including legal, economic, and physical characteristics), as well as matching the work scope to the needed solution.
- Data completeness, detail, and verification/confirmation of the market segment.
- Predictive methods used to estimate adjustments and apply algorithms.
- Integrability of results into user applications and decision-making.
Valuation is, and was, and will be a straightforward, four-step process. No matter the level of needed reliability, the only difference is the depth, breadth, and detail of each of the four parts: problem, data, predictives, and integration into user decision making.
Rather than regulating each level of industry, professional competence, and licensing, a new, consistent, and universally applied set of standards is needed.
The new standard should not be based on appraiser “worthy of belief” test. (As per Appraisal Foundation appraiser standards.)
The new standard should not be based on algorithm-secret AVM “forecast standard deviation” (FSD), or confidence scores. (As by individual private AVM providers.)
The new standard might expand on or detail Evaluation content and validity, as stated in the Interagency Appraisal and Evaluation Guidelines, sections XIII and XIV. The Universal Valuation Standard (UVS)© is currently under development by the Community of Asset Analysts©.