Ah, this is easy – pick comps!
This was pretty easy, compared to the many other things I had to learn. It was a little harder than making adjustments though.
For adjustments, I had an adjustment sheet. I foolishly asked how the numbers were arrived at. The answer was “It comes from many years of doing these appraisals, and these numbers just work.” Over a few years, it was clear that these numbers did work, and work well. I learned to tweak them sometimes. Like luxury houses should be at a higher rate, but not too high, else the reviewer might object and look down on me. Better stick with what everybody else does! It works.
My schooling in economics and accounting, however, kept bothering me. Especially econometrics, the “measurement of economic things.” We learned two simple things: Get the right population, and make the math work.
All the traditional textbooks emphasized (and assumed) that it was difficult, or impossible to get the whole data set to calculate. Therefore, you had to take a sample.
The math was complex and confusing, seemingly requiring great brainpower. It was called inferential statistics! This was a big deal! The only way you could get a good approximation of the parameters of the population, you had to have a random sample. Then you took “statistics” (parameters of the random sample) to estimate the parameters of the whole population.
Everything was all about how well does your sample represent your population.
Then I became an appraiser.
Pick comps.
There was no discussion of populations or samples or math. Everything was about opinion, good judgment, and support that opinion.
I got uncomfortable. This profession professed itself to be a science. See the original mission statements of the AIREA and the SREA – the “science of appraisal” – not the art of appraisal! My education got in the way. I was conditioned to just be very careful about picking comps and making adjustments. Be very careful.
Picking comps was easy. We had rules:
- I only needed three!
- They should be within a mile.
- They should be less than six months old.
- The best ones required the least number of adjustments.
- The total adjustments should be less than 25% gross, 15% net, and 10% individual.
Straightforward and clear.
But one day, another appraiser, who wanted to work at my office – said he just didn’t make adjustments at all! Wow!
They looked great. No adjustments meant it was a great comp! Perfect. You could fudge the distance, ignore over six months old, and look good.
That’s what I learned. Try to look good, not be good. Best of all, that was what the standards wanted. The standards said I had to be believable, not reliable.
And so it is today. With one problem.
They don’t believe us. We yell and protest. We are unbiased! We are good. They need us. But they do not believe us. It must be those pesky appraisers again.
Those pesky appraisers. They ruined our economy. Made those bad loans. Made us pay too much. And came in “too low.”
Just can’t trust them. They are not high enough. They are too low. Those pesky appraisers.
March 1, 2023 @ 7:43 am
Picking comps for me is what takes the most time. But wait, let’s look at this scenario. A home seller goes to a realtor and states “I want to sell my home”. The realtor states well I completed statistical analysis of the market … thousands of homes, and we should list your home at this price. The home seller say’s “Bullshit, the home next to me, or down the street sold for blah, blah,. my home is worth more and were going to list it at this price”. What is real vs fiction. A comparable is what the buyer or seller would consider in exchange for the home they want. A buyer of a million dollar home is not going to be looking at a 500k home. So it is not a comparable. If it sold on the same street, a reference should be made. Ask a realtor what is a comparable? Competitive. You have a thoursand sales, I have the sale on both sides of subject! Like a surgeon, medicine is a science, but the practice of surgery is an ART. That’s why they have malpractice insurance!
p.s. If you ever purchased a home, YOU know what a comparable is!
p.s. If AI learns from the internet, how does AI determine if something is false or real?. just another tool.
We all know the stories on the web are real!!!
March 1, 2023 @ 8:14 am
This article reminded me of an old college professor, Dr Jerry Miller, who was fond of saying, “if you can’t graph it, it’s not there!” You’d have loved him.
As to the last paragraph, regardless of what we do or how we do it appraisers will always be scapegoats because the key to success in the modern world is learning how to delegate blame.
March 1, 2023 @ 2:35 pm
Boy, ain’t that the truth…