The Appraiser Wore No Clothes – Death of a Trade


This article contains three sections – 1) A summary of statistical studies showing bias and variance in appraisals, 2) Exposing the lack of thinking and support in the appraisal trade, and 3) initial thoughts on how we eliminate the appraisal trade and move forward the Valuist© profession.

Recently, I was at a conference attended by appraisers, investors, lenders, and government agencies and one of the presenters said ‘We don’t think the appraised value is particularly important.’ The general public and real property participants have long held a similar sentiment about appraisals.

People arrive at their negative perception of the appraisal trade through personal encounters with poor quality reports or the media. In support of the general perception, several entities have published studies using actual data.


On July 12, 2012, Yanling Mayer of FNC posted the results of an analysis to examine how appraisal valuations respond to local market conditions. The study sampled purchase-mortgage appraisals on single-family homes and condos completed between January and June 2012. The number of appraisals sampled is not stated in the post, but is likely in thousands based on the volume of transactions handled by FNC. Results find ‘nearly 25% are appraised above contract by 3.0% or more. Combined with another 8-9% appraised at below contract by 3% or more, a third of the purchase-loan appraisals contain a market value opinion differing at least 3% in value from the contracts.’ In addition, the overall conclusion is ‘the overall distribution of appraised value relative to contract price shows significant upward bias in appraisals.’

The FNC analysis revealed 87.7% of appraised values were equal to or higher than the contract prices. This supports other studies we have heard about that found 90%-95% of appraised values were at the contract price or higher. Obviously, a true distribution not influenced by contract price would have a 50%/50% split above and below the contract price.


In December, 2014, Bill King published ‘Purchase Price and Valuation Variance in Residential Real Estate.’ Mr. King analyzed two sets of data. First, he found a subdivision that had 21 homes of the same builder model – square footage, number of bedrooms and bathrooms, etc. were all the same and the homes initially sold within a 12-month period. The data included sale prices for these homes from 1993 to 2014. Mr. King observed price differences from 0% to 15% over that period and he concluded a variance of +10% was appropriate with all factors being held the same.

The second set of data studied 69,134 appraisal reports done for purchase transactions nationwide from the 4th quarter of 2013 through mid-October 2014. Mr. King summarizes his results as follows:

“In over 88% of appraisals, the appraised value is equal to or greater than the contract purchase price; in about 75% of cases the appraisal value disagrees with the contract sale price. So, out of the gate we have at least 75% of cases in which some error is present – either the buyer has agreed to a contract price that is not equal to value (assuming the appraisal is right), or the appraised value is not equal to market value (assuming the contract is right).”


In January, 1998, David Geltner and William Goetzmann published a working paper titled ‘Two Decades of Commercial Property Returns: A NCREIF Index Using Independent Appraisals.’ A main focus of the paper was to develop a repeated-measures regression (RMR) index that would be superior to the NPI published by NCREIF. However, a side result of the research led to this conclusion:

The RMR procedure also allows the direct estimation of the average magnitude of the random component of individual property appraisal error in the NCREIF database. We estimate this individual property appraisal standard error at between 6.5 and 14.5 of the property value, most likely around 10 percent.”


K.C. Conway, MAI and Brian Olasov analyzed 3,276 CMBS loans where the real property had been sold. The appraised value was compared with the gross proceeds from each sale (i.e. no deductions made for sales commissions and other costs). In 2,076 cases, the sale date and date of appraised value were within 12 months of each other.

In aggregate, the study found the sum of appraised values totaled $18.1 billion and the gross proceeds totaled $13.0 billion. This shows a strong upward bias with the average appraised value 39% higher than the underlying asset sale price.

For the subset of 2,076 cases having sale and value dates within 12 months of each other, 60% of the appraisals were within +25% of the sales price. Looking at this from a different perspective, 40% of the appraisals did not fall within 25% of the sales price. This variance is disappointing.


In surely the most comprehensive study ever performed, Digital Risk analyzed 725,000 loans by hand. At an average of 4 hours per loan, they invested over 3 million hours in this project.

They engaged several fee appraisers to appraise each property and they also obtained AVM data as available. Staff appraisers monitored the process and performed desk reviews. Appraisals were performed in 2011 and were all single unit residences.

Statistics showed that with a 95% confidence level (i.e. 2 standard deviations), appraised values had a +15% range. Another sample of 200,000 loans between 2010 and 2013 concluded 1 in 7 appraisals contained material error. That was defined as the appraisal value being over 20% higher than true economic value.

At a presentation of this study, the presenter concluded by saying “Current appraisal methodology is not sufficiently precise/robust for client’s problems. The issue is systemic.”


Since 1992, I have been part of over 40 due diligence/merger & acquisition projects. The projects have been coast-to-coast and involved portfolio valuations ranging from $100 Million to $7 Billion. Properties included both commercial and residential.

For all of the projects, appraisals were concluded to be 17% to 22% overvalued. In all cases, the primary component of the average error was an inferior appraisal report. A small part of the difference could be attributed to time between the appraisal and the due diligence project.

My data tracking looked for any significant differences among property types, geographic location, and small versus national firm performing the appraisal. No significant differences were noted for any of these factors.


Mr. Pasymowski has five articles available for download at his website Two articles most pertinent to this discussion are ‘Econometric Solutions for Real Estate Valuation’ and ‘How to Discredit Most Real Estate Appraisals in One Minute.” The latter title is sure to get your attention.

Instead of regurgitating his arguments, we will present some of his conclusions and statements below.

“Unfortunately, in most instances real estate appraisers make subjective, anecdotal, arbitrary, and unscientific “adjustments” to comparable sales market data without objective market-based support.”

“Regression analysis is superior with regard to the comparable sales data selection. The ‘traditional’ methods contain a high potential for data bias, because the appraiser often engages in the highly questionable practice of ‘data mining’ by selecting comparable sales to support a preconceived value conclusion. In contrast, regression relies on an unbiased random selection of comparable sales.”

“If fee appraisers use AVM technology, it can be their friend. If they ignore AVM technology, their appraisal services will become obsolete.”


The conclusions reached above provide some consistent observations:

  1. Appraised values are at best accurate to a range of +10% to 15% with one study suggesting it is as high as 25%;
  2. Sale prices have a minimum variance of +10%;
  3. Both commercial and residential appraisals have strong upward biases ranging from about 20% to 40%;
  4. Residential appraisals hit or exceed the contract price 88% to 95% of the time (thus, the industry is asking clients to pay a ‘customary and reasonable fee’ for an answer the client has already obtained for free!).

Individual studies always take criticism for what they did NOT consider i.e. this one was local, this one was residential only, this one compared price to price or price to value or value to value or whatever! The good part about the information above is it is coast-to-coast, covers both commercial and residential, analyzes over 30 years of data in aggregate, addresses the price and value issues in all different ways, etc. Naysayers can naysay, but the evidence is overwhelming and conclusive. Mathematically, the conclusion is to shut down the current appraisal industry and start all over.


99%+ of residential appraisals have no support for adjustments. Adjustments are supported only by peers’ adjustments and peer behavior was a contributing factor in the bubble effect in the early 2000’s. Many reviewers also force appraisers to use peer adjustments and to exclude market-based observation adjustments, thus reinforcing herd mentality rather than independent thinking. Under threat of removal of the appraiser (duress) the appraiser succumbs to peer pressure (bullying) and the appraisals all begin to chase prices rather than values.

95%+ of commercial appraisals have no support for adjustments. The same issues mentioned above also apply to commercial appraisals. Even when proof is available, there is no room to move outside of boundaries set by peers, regardless of property nuances and value.

Many appraisers reconcile to an average with only 3-6 sales, when most times there are 10 times that many RELEVANT data points that should be measured and considered. So, are appraisers really that magically talented? Or does peer pressure dictate how comparison grids are loaded and adjusted? Even if appraisers are that good, why then do we round our results. We are either that good, or not that good. Again peer pressure, which is advocated and brought upon by USPAP.

Many appraisers don’t verify sales. Many conveyances are not available for verification, while many are. Appraisers have become frustrated at the level of an untrusting and unresponsive set of market participants. But, real property is an investment with a level of privacy that is intended, so the verification process may or may not prove to be valuable. Most sales from a typical MLS system are fairly accurate, some are not. But, there are mathematical solutions to these problems that can wash out outliers and contain the central elements of value. Are we spinning our wheels in verification after confirmation? Maybe in some intended uses. In some uses, verification may be necessary. Such as government-related direct purchases where the large bulk buyer data is possibly baked into the analysis. In this case, participant verification is required by the clients usually and appraisers of these reports tend to provide this service for a commensurately larger fee for the time it takes to sort and purify the data set.

Many appraisers do not measure the subject improvements. Where was the information about the subject property procured? It may be okay to have several crosschecks, whereby a trainee physically measures and the supervisory appraiser confirms with Google or STDB. But, the owner should be asked, the public records researched and all should be combined to provide the read sources and crosschecks to explain the data used and how it was refined. Foul weather, conversations at the site visit, uneven terrain, landscaping, clutter around the structure, can cause outdoor physical obstacles impossible to accurately measure a large structure. Crosschecking and refining the data for the subject is imperative and several available methods have recently removed the excuse.

In general, the vast majority of commercial appraisals and almost all residential appraisals contain unsupported assumptions, unverified data, and biased (to the upside) values. No one can blame the public for having no faith in the industry when most of what it produces is not remotely reliable. Public Trust has long been violated by biased individuals.


Appraisers have been well indoctrinated to remain tradesmen, not to evolve past present minimal standards (we speak to the industry, not individuals in all cases) relying upon reputation of having special skills in this mystical investment math. When, in fact, the risk industry provided for the past 100 years much better, accurate and profitable results in insurances, investment performance and in business and public sector development; the general proof of this growth of our trade away from the public trust is the lack of mediation work asked of appraisers in court cases. Appraisers are seen by the public in court cases as expert witnesses (hired guns) to go in and argue different and beneficial results to one side of a court battle. Appraisers, if we are what we say we are, it would seem would be most paid for service to mediate a court battle if they were truly trusted by the public in this regard. With the recent housing debacle, there were very few cases settled by mediation where an appraiser was asked to preside. But there are now thousands of case settlements where dozens of appraisers are brought forth to testify on a single case and all arguing what is VALUE.

The insurance actuary profession sees just the opposite treatment due to its prowess of math and risk and unfettered fear of telling the truth. Actuaries are still compensated even if proven wrong by future unpredictable events. It is not to say that appraisers should take on an egghead persona which actuaries tend to project, but there should be a client care factor that allows for modern mathematics with understanding; instead of selling the client that we can produce wanted results and our math is better. Time to take off the Wizard’s Robes and begin to demonstrate, explain and defend with math of at least the 20th century and data sources of the new 21st century; what the market is providing in evidence.   If the market evidence is weak, that should be proven. If there is strong evidence, that should be proven, also.

Weather forecasters cannot predict the climate, but the public trusts a 30 second weather report daily based on predictive analytics. The math isn’t provided because the public trusts the presenter. Behind the weather forecast is analytics that help the Navy, Merchant Mariners, Construction, Agricultural and Manufacturers make trillions of dollars of decisions each year in the US economy alone.

Appraisers are trusted less than the daily weather forecast in most cases.   This is why review processes are embattled rather than constructive and court cases are contentious, rather than resolute, as with a coroner’s opinion. But, instead we are pounding each other out of existence. The claims that no one of us is correct or that if incorrect; banishment is the only solution for disagreement is preposterous.   We look like crabs in a hamper dismembering one another (not that the legs won’t grow back) but the interminable suffering is not necessary. We must prove to the public trust that we know what it is that we are doing and how in OTHER tangent studies and financial arenas these methods have worked and evolved.

Math (even in simple form) is the four letter word that most people hate to engage in, but accept as truth in a final analysis when techniques that well cover a topic are brought forth. Take for example a routinely visible trait in other value studies; a rated medical study, whereby the participating researchers and performers of the study (are emboldened by their peers) to rate their results as meaningful and reliable or if it were designed so, a cursory study with little dependability but may be a worthwhile start to another follow up research study with greater detail, data points and measurement. So, in medicine, where the stakes are quite high, we see cross checks abundantly and self-review within the work itself which is a true advantage to the public trust! While for our purposes complex and proven hypotheses (statistical proofs, quantitative methods and actuarial techniques) are baseline in our work files. The explanation can still be provided by examples in a simple adjustment grid of comparables or graphical presentations that show the meaningful results, and then other review appraisers could quickly crosscheck the underlying work files mathematics for accuracy and reliability but withholding a judgment of correctness. The work file contains the provable math, while a report that is understandable for the client is produced. Data point purity and reliability is rated accordingly, with consideration given to whether the data is raw, confirmed or verified. A simple scale rating is used to account for the level of available development of the data point within the overall data set used in the report.

Ideally, a value data point might have at minimum important or telling aspects of value, cost, sustainable rents, conveyance information, land and building relationship ratios, acid tests of sustainable rents to cost and conveyance data, etc. These aspects are regressed properly (not singularly which is currently taught) in a well-developed multivariate manner with proof tests of fit, significance, and correlation.   There is need for a distinguishing name for people who use higher math and methods to develop values.

The future Valuist© professional must give clients exactly what they need in regard to the reported and produced product. This does not mean giving up proprietary datum, methods, and developmental reasoning as the other professions hold as confidential (The NOAA does not provide its weather reporting to everyone in the same form, as it could at some level interfere with military strategy, its original purpose), but the public uses some of the weather results each day, non-confidential.

But, the future profession cannot have one set of standards or products that apply to all clients. The black Model T Ford as the only option is unacceptable. We must provide a wide range of makes and models with optional accessories.

This will not preclude clients from still requiring a certain report content. In fact, the goal is for this to occur. Valuists© would have significant leeway to meet clients’ needs. Form over substance must be replaced with substance over form.

Transparency is key to the future of valuation. It is time we make this more of a science so others can replicate the results within a reasonable range. The art argument has failed us for 80+ years.

An upcoming paper will detail our vision for the new profession of Valuists©. Until then, we leave you with some pertinent definitions that are still being discussed.

Valuation Analyst – A Valuation Analyst is competent in techniques and methods of extracting useful information from large and small amounts of numeric data relating to real or personal property.  A Valuation Analyst would not necessarily be a Valuist©, as a Valuist© must exhibit competency in market theory, valuation analysis, and standards of practice when performing a service. (David Braun)

Valuist© Noun [val-u-ist] A real or personal property valuation professional that excels in the use of quantitative methodology and/or econometrics to prove a property’s defined value; a person who estimates value, especially one skilled in real or personal property valuation. (David Braun, Bruce Cummings, George Mann, Eric Moskau)

Valuistics© – The application of statistics to the realm of valuation analysis methodology. (David Braun)




About George Mann & Eric Moskau

George Mann has a total of 29 years of valuation experience: 5 years as an independent fee appraiser, 2 years as a real estate assessor, and 22 years as a review appraiser with financial institutions. George was Chief Appraiser at two regional banks and has assisted financial institutions ranging in asset size from $50 million to over $1 trillion. George is a nationally approved instructor with the Appraisal Institute and has been teaching the Appraisal Review seminar for over ten years. George has published articles in The RMA Journal and The Appraisal Journal. Eric Moskau has been a practicing appraiser for 20 years and an MAI since 2007. Moskau graduated Loyola University Finance and Management in 1984, and studied at a graduate level in Financial Economics at the University of New Orleans in 1996.

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  1. Avatar
    Retired Appraiser

    The “Valuist” that you describe looks strikingly similar to an IBM Z13 mainframe computer. You did get one thing right however. This profession aka trade is nothing more than a dead man walking. Last one out, turn out the lights.

  2. Avatar

    Good Shut the appraisal industry. Bankers will be happy, Relators will be happy to supply the bankers with “value.” Never mind that they have a dog in the race. Buyers agent, Sellers agent both make their money on how much the home sells for. Sure take their word for it. Use your AVM models. Disregard abuse, “pride of ownership” maintenance and upkeep, the drug lab (Realtors are not allowed to disclose) and inflated square footage. Basement in the above grade living area, detached buildings also in the overall living area. Water front property because it’s on a cliff. Trust the used “home salesmen” We’ll have a bigger fiasco then 2007 in no time.

  3. Avatar

    The best thing about posts such as George Mann’s is that they are written by the appraisal industry elders who most arguably led the industry to where it is today. Thank you Mr. Mann for critiquing and damning the current landscape that you helped shape.

  4. Avatar
    Travis Pettengil

    I tell ya what…., I’ll do the inspection (If you “think”
    condition and structural integrity are important), and you certify ALL the adjustments
    and ALL the data presented within your nifty AVM product. YOU accept ALL
    liabilities on a state and national level including EVERY single “Buy
    Back” coming down from the secondary market…… I’m in, where do I sign

  5. Avatar

    “Obviously, a true distribution not influenced by contract price would have a 50%/50% split above and below the contract price.”
    The above quote from the article is not true. The study was for appraisals between January 2012 & July 2012 and reported that 87% of appraisals had an appraised value above the contract price. At that time prices were rising at a rapid rate. The contract price is reflective of the offering price which was established sometimes many months earlier. With rising prices it would be expected that most appraisals with an effective date much later than the listing date would have a higher value than the contract date. In my opinion George Mann did not think this thru to well.
    Lester Caplan, CA State Certified General Appraiser, AG001751
    33 years of diversified Real Estate Appraisal Experience

  6. Avatar

    So most contract prices during a declining market period were lower than appraisals using data from 3, 6,9 and even 12 months prior…you don’t say!?!?

    And, of all of those massive studies “proving” how biased and inaccurate appraisers have been, how many of those reports were for full, interior inspections as opposed to the proliferation of “drive by” and AVM assisted and BPO products that banks have been utilizing to save, yet another buck?
    And, oh by the way, how many of those reports were performed for an adequate fee with reasonable turn time expectations?

    So, the real conclusion to the article is, one size fits all forms which ask for a single point value determination are at best, ill conceived, and at worst, misleadingly fraudulent…
    also read… The banking industry has been getting exactly what it has been lobbying, coercing and barely paying for, and now wants to bitch about quality!?!?!!

    Please! There are plenty of great appraisers out here, only problem is, we’re not the one’s clicking “accept” on a 12 page engagement letter for a property of unknown characteristics at a non negotiable fee of $200-275 within 5 seconds like the appraisers which performed the vast majority, I’m sure, of the poor products referenced above.

    • Avatar

      The publishers of all studies I am sure will be glad to answer any questions. As far as I know by reading info I have seen, all data are full blown appraisals reports with interior/exterior inspections – both commercial and residential. No shortcut products or scopes of work. The people appear to have taken great lengths to overcome all of the off base accusations they knew would occur. But, again, they can each answer such questions. I know my experience mentioned is a review of all full-blown appraisals with full inspections, et al. I did have one assignment with some commercial BPOs and I do have those stats somewhere – they were off by more than the appraisals used by the same bank is all I recall right now. No surprise there.

  7. Avatar

    We can get rid of appraisers because we have technology. That’s like saying we can get rid of our police force because we hardly have any crime.

    • Avatar

      If an appraiser is in any way analogous to a cop then everybody I know who is appraising real estate is woefully under equipped.

  8. Avatar

    To say that this article is biased is an understatement. “The Naked Truth…” category is clearly a list of false claims. As for the research cited, it reads like an advertisement for AVM.

    • Avatar

      As noted elsewhere, we have nothing to do with AVMs. I don’t even know anyone who has ever worked for one.
      The paper is about how we can take a trade with unhappy and under paid people with a lack of respect from the clients and public to a profession with happy people being paid above market and respected by the clients and public. Yes, this starts in this paper by showing how worthless the current appraisal product has become – numerous reasons for such appear in the paper and in general comments by others.

      • Avatar

        It could be improved, but we need to go in the complete opposite direction. We need LESS regulations. We need those that know the market and are not pressured by AMC’s, Realtors, Homeowners, Regression, AVM’s etc.

        If you want to change they system and get accurate values, then hire three “Valuators” to inspect each home and make an offer. Each valuator will be required to analyze the current sales and listings. You get three offers from three independent “Valuators” and if two match, that is the value. If all three are different you select the middle offer.

        That method would be far more accurate than any computer or opinion by some distant review appraiser.

        • Avatar

          It is time the trader understood that there simply is no such thing as an accurate opinion of value, therefore there is absolutely no method that will produce one. Now predicting price may be another matter.

  9. Avatar

    If value isn’t important, why all the lawsuits when values fall? If it doesn’t matter, it doesn’t matter, right?

    Sorry, a 50:50 distribution around a mean would not necessarily occur without a known sale price. It might occur, but the value opinion range would be so tight as to invalidate the “distribution”.

    Why does it matter what the public or real estaters think? We’re not here to entertain them. They don’t like the appraisal industry because we are impartial and show them reality. They don’t like impartiality and they don’t like reality. They don’t like inspectors and surveyors either. Why, because inspectors and surveyors show them reality and are impartial. As the population become less and less educated and more and more superstitious, yes, we’ll be reviled even more. So what?

    I’ve listened to builders, real estaters and lenders say for thirty years that they don’t care about value. No? So why do their heads explode when the value doesn’t “make”? Why should we listen to or care about such liars?

    “In over 88% of appraisals, the appraised value is equal to or greater than the contract purchase price; in about 75% of cases the appraisal value disagrees with the contract sale price. So, out of the gate we have at least 75% of cases in which some error is present – either the buyer has agreed to a contract price that is not equal to value (assuming the appraisal is right), or the appraised value is not equal to market value (assuming the contract is right).”

    That is the silliest thing I’ve ever read. Who said that value and price were the same thing? So, we have one side vilifying us for considering the sale price and another side vilifying us for not considering the sale price. This is nothing but a mind game by the lending industry who want to get rid of all impartial input so they can rule the world.

    • Avatar

      “…either the buyer has agreed to a contract price that is not equal to value…”

      Thank you for reminding me I wanted to comment on this concept as well.
      Have you ever interviewed a buyer of real estate? I have, hundreds of them. Less than 1% base their decision on an exhaustive comparison of the physical characteristics of the property and similar properties which might serve as substitution. Most start with the asking price (set by sales people) and try to get in as much below that as possible. PERIOD. Or, in times of inventory shortage, they simply get into bidding wars.
      It is not the appraisers who are lacking science as the studies want to suggest.
      A diligent and competent appraiser knows that his job is to gauge “Buyer Motivation”. You must know how a buyer in your market views his choices and what factors they react to and, if possible, measure in dollars that reaction.
      Do you know how many homeowners I have interviewed that don’t have any idea what the GLA of their home is? Do you know how many home owners I have interviewed here in NJ in 2008, 2009 who thought that their property should be worth what they paid in 2007, plus what they just spent on the new kitchen, plus a couple of percentage points because time had passed. How do you think they reacted when they received their copy of the appraisal?
      But contract price should be some touchstone piece of data??

  10. Avatar

    Funny thing is, they want all the reports to be precise and use all kinds of methods to come to a value conclusion but we are only given 48 hours to perform all of this. You just have to laugh at all of this nonsense. Give me five days and $50 an hour and I can take every single statistical model and use them in my analysis. The problem with this is, assuming I work on this report eight hours a day at $50 an hour, my cost for a single appraisal is $2,000. Who is going to pay for that fee? Go to Zillow Mr. Lender and you will see how out of whack using AVM type models are. Another ridiculous article with no solutions, just ridicule and blame on the appraiser. We are not saying that realtors do not have some perception of value, the problem is that they are an advocate for either side so cannot be trusted in the valuation process, hence the unbiased appraiser. Lenders want everything cheap and fast as we have learned from the AMC process that was put into place and the complete raping and piliging of all of our clients. Now the lender actually makes money off of the appraisal. Why don’t these people point fingers where they should be pointed, at the corrupt lending facilities who are still practicing the same old stuff they were before the meltdown. Ridiculous!!!

    • Avatar

      Well said Matt. They cause the problem, get bailed out by the government who helped cause the problem, and blame appraisers for being the cause. At least if they eliminate appraisers they will have no one to blame but themselves.

  11. Avatar

    If the banks or anybody wants to eliminate the appraiser,
    the good real estate appraiser should just wait till the banks stock prices are
    back to nothing and buy as much as you want of them. (2008) Also, wait
    for this, the speculation fueled by tons of bad data that just keep feeding on
    itself (2004-2008) especially with desk top evaluations and algorithms and
    regression analysis that leads to a housing market which those in the know can
    take advantage. I like when the huge drops in housing prices show what a moral
    hazard lending without over site can cause. I mean it’s only been 8 years since
    bad lending practices damn near ruined the country, and now, we are printing
    articles about getting rid of appraisers. If you do not care about the market
    value of the home, aka: the appraised value; then you does not care about the
    collateral that covers the loan. (lol lol) Does that problem ring a bell
    mortgage industry? I think that is the exact mentality that drove the
    bubble, If you get rid of appraisers, just like the last bubble when many
    mortgage people lost their jobs, the bigger lenders will be the ones gone
    because all the small fall guys are already gone. If a lender cannot see the
    logic and afford to spend a few hundred dollars to have less risk in a loan
    covering hundreds of thousands of dollars, they need to lose their business and
    their money. That kind of risk and moral hazard is the kind of stupidity and
    lazy greed that lead to the last financial crisis. If as an appraiser, you
    don’t shoot down a bad sale or you do come in way above a firmly negotiated
    contract price, or don’t know the market or do analysis, you sure do not help
    the problem, HOWEVER, the power is in the lenders hand!!! It always has been!
    if they want to get rid of appraisals and underwriting practices and common
    sense and try to destroy themselves (Lehmans, Wachovia) and the financial
    industry aaagaaainn, that will be up to them, but I sure hope men of common
    sense will prevail and not give judgment over loans of hundreds of
    thousands of dollars to a logarithms or mathematical puzzles that do not look
    in the basement that just had a leak. For once fueled with such bad data and
    such a skew of values shows in the system, you just thought the last fall in
    home prices and thus, the value of the banks ($1 stock prices) and of
    everything were bad, just wait.

  12. Avatar

    This article is absolutely ridiculous. The low interest rates and over lending to questionable buyers led to the housing bubble and crash, not appraisers. The AVMs and Regression models are computers. Do computers buy houses? I have seen AVMs that use lake front houses and compare them to non lake front houses which is why I assume that your statistical figures are so skewed. People do not buy features on a house they buy the house as a whole and you can therefore not determine any adjustment with 100% accuracy but an experienced appraiser should have good adjustments and bracketing comparables and features. Does a buyer walk through a house and say ” well this house has a fireplace lets add $3K to the sales price and it also has a pole barn lets add $10K to the sales price? No they look at all the features and then decide if it is worth the price as a whole based on the other available properties at the time of purchase. One of two things will happen if appraisers are eliminated. Either all sales will go through and the market will spin out of control as it has in the past, or a large amount of sales will not go through and sellers will start to sue AVM companies and those involved with computer valuation because the avm compared their house with $200K in upgrades to the same size house with none. What I really don’t understand that nobody has said about the valuation industry is people don’t pay the same dollar amount for any product, and that there is a value RANGE for everything except apparently houses which have an EXACT value(Not).Cars sell for sticker price to some and are deeply discounted up to 20% for others. I bought my phone at costco for $89 which was selling at the verizon store for $250 how much is it worth? Why don’t we do a regression analysis to find out.

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      Regression analysis does NOT stop someone from being dishonest, it can be manipulated too. There is just no substitute for HONESTY and CLASS. With near ZERO law enforcement it will NEVER get better. NEVER. Ten YEARS ago, when I quit they were talking the same CRAP. it is NOT better. Ten years from NOW, there will be very few Real Estate Appraisers, if any. Most certainly with anything residential. It will NOT get better. The “system” does not want that. The “people” do NOT CARE, all the typical American “Citizen” cares about is sitting on the couch watching Football and growing his butt ever wider. Real Estate Appraisal is NOT on his mind, he does NOT give a damn about YOU, your racket, or anything else really. Just Bread and Circus. His mind is NUMB. Sorry, it is the way it is. BB

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      I agree with Scott, Mr. George. The are certain undeniable “intangible human factors” that have to weighed, and water frintage, depth of lot, scenic view, point lot vs. cove lot, are just a few of the things a computer JUST CANNOT INTERPRET.
      There is a place for the math, I agree, but Mr. Scott has a point that cannot be ignored.

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    Whew! That is a bunch of unnecessary typing. This whole world is full of geeks who try to overanalyze everything and make the world a far more complicated place than it needs to be. Property values and banking institutions were viable and profitable with no significant downturns in real estate values for decades. Appraisers weren’t even licensed. So banks start using unorthodox methods of lending and we have a problem with appraisals?! Time tested lending methods would have prevented our value implosion. Appraisals could have been 5-10% overvalued on every single report and we still wouldn’t have had the problems we had IF banks had used those freakin time tested lending practices. Appraisers provide more important information than value too. Just creepy and weird that the dragon con geeky types want to rule the world. What normal person spends time thinking about this nonsense?! Oh, I know. The same type of people who put our voluminous tax code together that the IRS commissioner just admitted no one can fully understand. Or maybe the same type of people who put the ACA together. Geesh folks!! Everything doesn’t have to be so darn complicated. Serenity now!! Mayberry now!!

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    So Captain Obvious is now commenting on appraisals. There
    is an upward bias in residential and commercial appraisals, surprise, surprise.
    Why would that be? Appraisers make numbers because that is where the reward is.
    I’m continuously in “trouble” with lenders and appraisal management companies because my opinion of value is significantly
    lower than a previous appraiser’s unsupported valuation. Pressure cannot be
    eliminated by mathematics.

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      Correct, pressure cannot be eliminated, but it can be kept in bounds if appraisers would only do it.

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        They will NEVER “do it”. I saw that years ago and quit. It ain’t worth it, its the lousiest job with the lousiest people I have ever been around, BB

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    IMHO there is a point to be made about an appraisal for a confirmed arms length transaction with well informed buyers and sellers where the price is in fact the market value by definition. Most times the contract price is met or exceeded. Guess what, you are buying insurance because of those 5-10% occurrences where the appraiser finds out contrary information and either saves the buyer money or gets the seller more money. As for the entirety of the rest of our work such as refinance, equity, asset valuation, servicing etc. we all use those facts, (prices) to develop a value, (opinion). There is a 10-15% range on the opinions of course, because you are applying a market tested price to a non market tested property. With buyer preferences, unique property characteristics, moving market conditions, seasonal affects and so on it would only make sense that a price would differ from a value opinion within 12 months time. Frankly I would be worried if it didn’t. Just to be clear we live in a capitalist society that is greatly influenced by the market that is constantly changing. If you want a static market with provable valuations within 95% confidence across the board then guess what, you live in a communist society. Can we make use of newer processes and technologies such as multiple regression analysis? Of course we can but anybody that has employed theses techniques also knows there shortcomings. The only people I know that don’t have confidence in our profession are the very few that get a “bad” appraisal and have to perhaps get another appraisal which is bound to happen, there are some bad eggs; and the rest of the few that don’t get what they want regardless of the good appraisal. This well never change. If you always give people what they want we have much larger issues. If you are going to claim that appraisers are wrong because prices within 12 months of an appraisal were different, then offer up the great piece of precog. tech. that got them all right. You can’t because it does not exist.

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    A trainee should measure the improvements and the supervisor should verify it on Google or ask the owner or the public records? What sort of moronic appraiser asks an owner or verifies such on Google or the public records? I’ve measured thousands of houses and I’ve never run across a house I couldn’t measure and I’ve measured some very complicated houses. If there was some small portion I couldn’t measure due to obstruction or no access, I explained it. I never ask an owner. How on God’s green Earth would they know?! How would the public records be accurate? Oh, yeah, some idiot bureaucrat measured it to the nearest foot … maybe … if he didn’t have to get his shoes dirty. Oh, maybe they prayed about it or asked their Grandma, huh? Good grief. Where do these ivory tower types come from? Come sweat with me and get covered with grime. Get your clothes torn to pieces on rosebushes and hawthorns. Stand in fire ant beds. Twist your ankles on uneven ground. Get eaten alive by mosquitoes, stung by wasps and sink up to your knees in mud. Bunch of sissies.

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      You are exactly right pray hard. I measure every house, even the very complex ones and very many listings and public records are OFF by more than 10%. So even if you could come up with some sort of PERFECT VALUATION METHOD, it would be invalidated by the huge amount of incorrect data that is put into it, namely the data itself that is not perfect.

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        I’ll leave it to the statistical geniuses I continue to meet to explain how regression analysis takes care of data errors. That is in fact one of the strengths of having lots of data – it can overcome all of the errors in the data. It’s a lot better than relying on 3-6 sales! As more and more appraisers are proving in court, using dozens of sales that provide hundreds or thousands of comparison is superior to the archaic method of using 3-6 sales and made up adjustments for 1-car versus 2-car garage. The trend will continue and people who fight it will just go by the wayside. And it will continue in commercial especially.

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          Have you ever heard that statistics lie? I am all for a better method of completing an appraisal, but people manipulate statistics every day almost always to prove a predetermined conclusion. Crime down 20% etc….. There are way to many factors that are involved with a house purchase that are not accounted for and as many people have mentioned individual buyers all have individual preferences. Take just one element, say SF. I have been appraising residential homes for 20yrs and have seen many many houses where the matched pair shows the exact opposite of what it should, ie the larger house sold for less than the smaller house, with all other factors being equal. There are over 500 small factors that added up to a buyer when they buy including colors of paint, siding, countertops, materials used, I can go on and on. Should we use statistics to determine all of those small differences and what values each of them have? Then there is value for the individual buyer. A large heated pole barn is of little value to most of the market, save a few who work on cars or have other personal uses for that item. Those individual buyers are willing to pay more for that item. The point I am trying to make is that there are no 2 houses that are exactly alike, and a good appraiser should be able to prove the market value of a property, which I think should be a range of value, because nothing in this world has a precise value, everything and I do mean everything has different values for different individual buyers. Gas is $2.50 per gallon right now, a few years ago it was $4. Gas is worth $4 per gallon to most people with a car and is worth nothing for anyone without one. What we as appraisers are doing is making sure some one doesn’t pay $6 per gallon when at the same time every one else is paying anywhere from $3.75 to $4.25(a range). Lenders have to know with interest rates still low and values rising that when interest rates rise values with go down again, unless lenders require 50% down or more then there is no way to protect against a market collapse. What is going to happen when all of your statistics start to prove that a house that had 3 buyers all wanting to buy the same house and the values based on regression show a value that is $50k or more less than actual market. I know if I was the seller I would be taking some one to court.

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            All I can say is you and others who don’t join the stats bandwagon will be passed by. The current method of 3-6 sales is obsolete for more reasons than people can argue why stats is no good.
            Either way, my email signature says to ban the Sales Comparison Approach anyway since sales are rarely, if ever, relevant to arriving at value. Germany’s Mortgage Lending Value only uses the Cost and Income Approaches and comes up with a value that is valid over the life of the loan (way better than our worthless point in time prices, we don’t do values here)…and in 100+ years they have ZERO loans go bad. Obviously valuing without sales has been around a century and has been very successful. Oh and yes they have ample sales of all property types over in Europe.
            If you worry about stats for residential values, come on over to commercial which is a million times more complex and stats is coming to fruition there. It will be used everywhere. The 3 sales and a cloud of dust is dead. Stay with it if you want. Enough of us will join with our clients and move onward with Big Data and regression analysis.

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            I want to be the best appraiser I can be and always strive to achieve the most accurate value for a property. Could you please explain to me how including more data points is helpful when those data points include properties that aren’t comparable to the subject property. If you Include distressed sales and homes in less than good condition in your statistical data for a home in excellent condition then your data will be skewed low, and vice versa when you include homes in good condition in your stats when appraising a home in poor condition your numbers are skewed high. I am only talking about 1 data point here(condition). If you do this with all of the data points then the data will be skewed way, way off. This is why appraisers are supposed to pick the best comparables not the most comparables. I am really trying to understand how the statistical modeling is better. I have seen in many many industries including my own beloved appraising profession, that some one has this wonderful solution to the horrible problems. What happens as I have seen the solution ends up causing 10 more problems then there was originally. There is no perfect system for anything and there are alway people who will not do the right thing, no matter how hard we try to prevent it.

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            No disrespect here and really simple ignorance on my part – I am not the person to explain how multiple regression (which in itself is needed over the linear regression is used by many already) is better than 3 sales and a cloud of dust. The people writing the regression analysis seminars for appraising are the ones to ask. And there are several of those seminars out by most of the different education providers.
            Math is my forte. But, explaining why multiple regression is superior is not something I can do justice. I always leave to those much smarter than me to explain such.
            It will take repeating a lot, but we continue to say that our idea is to have the valuation report transparent. No more of this BS ‘based on my experience’ with no support. So, the multiple regression (which as we will explain will be just one of the methods….having only the SCA is a major problem now and we don’t want it to be in the future) would show all of the data used….show all of the statistical results….explain the reasoning for using or getting rid of outliers….explain other pertinent stat results….on and on. So, all of the questions that are being asked should be answered by the transparency. In the end the client, may not agree with this or that. But, they will likely need to have an equally smart statistician on staff to know if anything done by the valuer is in error.
            Obviously this is leading to a product to is WANTED, not just needed by some law. Clients who understand the advantage of stats analysis….experienced the debacle of 3-6 sales…..know a more complex product with more data is better.
            The most complex of maths is used in probably every industry….the same questions are asked everywhere. Do we think that the input data in medical studies is 100% accurate? Heck no. But, with enough data the errors become meaningless and the stat results are reliable. It will be the same in our relatively simple real estate industry. We won’t have complex inputs.
            Again, I suggest talking a few of these regression seminars. I think someone even offers a free one every week on various days. Before anyone accuses of me making money off of those seminars, I have nothing to do with them and don’t even teach one myself. I leave that to the stat experts.
            I am with you Scott….I need to know how this will work. I have been convinced it is the way of the future and I am going with it. I am even convinced it will work in commercial (I have seen so much data over the years that I am confident there is way more than needed to run valid regression analyses….and the problem of small towns has been solved, too.), much less it already works in residential (if done correctly).
            As to clients who will abuse anything we develop, I guess I say so what. We are not policemen. I worked inside banks. The Appraisal Department was not the policeman. The Loan Review Department, Internal Audit, and External Examiners were the policemen. Let them do their job, we do our’s.

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            I think the reason you see the stats work better in Commercial is that business decisions are less emotional than a residential purchase and there are more clear reasons for a purchase ie the income approach. When you take the art(opinion based on experience) out of appraising and boil it down to stats I feel you are not determining an accurate market value, you are determining a statistical market value value. There maybe I am the first to coin the phase and maybe an additional approach which may be a good one and helpful for lending purposes. I also think that some one needs to stand up and say wait a minute stats aren’t an end all be all. You mentioned the medical field. If 70% of the time your symptom say you require one treatment, I sure as hell want a qualified, experienced doctor to say wait a minute, are we going to do the same treatment on 100% of the people and its ok if 30% die because oh well we saved 70%. Same thing with statistical valuation, you need some one who knows the art of it and not just the data.

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            Oh my God. George, you don’t know me from Adams housecat, I’m a silent runner….but you are opening up a can of worms I cannot ignore. I have over 4 decades in the biz, multiple interlaced duties… and I predate you in your 2005 prediction by at least a year and a half. I screamed it from the roof tops in 7/2004. I knew we were definitely screwed exactly on 02/26/2007. Did you get that memo ?

            We all know Greenspan threw out the anchor and hung himself to end the madness, ….he raised interest rates to the max the FED would allow as soon as he could, …. and he MADE those ARMS default. Which MADE the paper bad. What you DON’T SEE is street level economics….follow the money George. The old man was being pushed hard by some powerful punks. At least I’d like to think so.

            I think Greenspan loved this Country and tried his best for many years, but the Punks got to him…. Wall Street runs the Fed now.

            Sham legislation goes thru…..”Protecting the Public again”, until the next generation gets greedy and does it again.

            It’s Puppets…… George. It’s not a free market anymore.

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            No one will dispute the more than casual relationship of interest rates to value. Beyond that however I’d like to point out that as far as gas prices go, it is much more supply and demand that sets the value more than an individuals perception of the value. For instance, gas (oil) prices are down now because to much oil has been pumped out of the ground and there is virtually nowhere to put it. Additionally, there are suppliers that likely will come on line in the quasi near future (say Iran) putting more pressure on the supply side.

            Your entire argument about 500 variables being used by buyers and hence contributing to appraisal error when not all the variables are used is simply silly for the following reason. I have statistically examined sales prices and innumerable variables using a variety of techniques for decades. I’ll point out that no statistical model (especially regression) will ever indicate (that give or take a few) more than about 25 variables are relevant (I am not relating to binary variables such as wood sided, brick, stone counting as 3 variables but rather a single variable called exterior wall type counting as 1 variable).. While you may intuitively believe that 500 variables are relevant. I suggest to you that NO ONE has EVER substantiated that your intuitive statement is true. The reason for this is that there are always inconsistencies in any data set. In fact, this is what regression attempts to filter out (implicitly – that is the procedure identifies how correlated each data element is to sales price). Many analysts believe that the reason no more than 25 or so variables are shown to be relevant is that sellers often set prices that are unsupportable by the market place buyers. The buyers evaluation process is MUCH more subjective than objective – coupled with a lack of significant data analysis. Hence there are so many inconsistencies between buyers (in terms of how they see the value of each variable) that it is easy to demonstrate that there is little to no statistical significance to most of the 500 things you suggest are relevant. If this statement is in fact true (which I believe it is) then to suggest that 500 variables are relevant and should be adjusted for – is simply silly and ignorant.

            A last point or two. Yes, it is true that if one has a plethora of sales, perfectly defined and collected data and a thorough validation of both sales prices and characteristic data at the time of sale for sold properties – then the quality of most appraisals should be pretty reasonable. However, these conditions rarely exist, hence the entire discussion about appraisals revolving around the qualifications of appraisers and methods used is completely misplaced. The problem is simple. Very few bankers/ home buyers want to pay for the effort to address data accuracy, sales validation, and property inspections of any and all sales used in the analysis. It may not be fair that appraisers are not paid more, but that’s life. Hence the huge CYA wording… opinion of value.

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            You think you are arguing against my point but in fact you are proving it. It is impossible to figure out the exact amount to adjust for anything, and just because you have a huge statistical model does not prove that your adjustment is right over an experienced appraisers estimate AND actually looking at the the appraisal while working on it and using common sense. You mentioned the words “Filter Out” , I assume this is the outlining properties in a data set. That sounds a lot to me like manipulation of data to achieve a desired result. A computer can tell you that a large barn quality built barn in the early 1900s is worth X amount of dollars based on the data but it can’t talk to the realtors and get feedback that this is the biggest selling feature on this property and horse owners are lining up to buy this property because it is in such good shape, but other properties in the area have distressed barns that are worth next to nothing because they need $50K in repairs or to be torn down. What I keep hearing is that stats will make appraisal more accurate. What people are failing to realize is like you said people buy houses for different reasons and motivations which may be 1 or 2 or even 5 key features for that particular buyer and maybe a few other similar buyers. The stats. assume conformity where there is not. Take just one thing like Square foot. How many times have you seen a matched pair with the larger square footage selling for less. Me? Many times in 20 years. Then how are you supposed to calculate the diminishing return on square foot. I saw a 5000SF house sell for less than a very similar 3000SF house because no one wanted to heat and cool the extra square footage. Stats would say there should be an adjustment to the positive because of regression analysis. All things being equal houses sell for less because of paint colors. That is not account for in quality and condition or any other factors. Thats why you need an appraiser to say in his/her report that these houses were the same but the paint colors turned some buyers off and use common sense to estimate a proper value. I like the Idea of being as accurate as possible. That may be using regression for some uses. What I am saying is before we jump in the pool of regression analysis with a blindfold maybe some one needs to stand up and say WAIT there is a shark in there.

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            Your response baffels me any number of ways so I’ll keep my reply limited to a single thing – I quote you;; “The
            stats. assume conformity where there is not”. Welllllllll, not exactly.

            The stats are the stats – period – they are what they are, they don’t assume anything.
            The stats, as you call them, can tell you many many things. One thing they can tell you is; with what certainty and confidence those pesky adjustments are in sync with your intuition, as you say. Seriously now, do you think NOT knowing the correlation between dollars and size, or, dollars and age, or, anything else for that matter, is a good idea?

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            Yes, I do think that knowing the correlation between dollars and size, and dollars and age is a good Idea. Correlation is not always causation. Lets say you run a statistical analysis of the difference between school districts and it shows a 10% difference. Well in my area there are subs that do have a difference and those that do not, and if you just blindly start making adjustments based on your data without knowing the facts you will be making a wrong adjustment in some cases. Heres another example -I just did an analysis of the price change year over year for a certain school district and it showed a 15% increase. Most people will stop there and not think about what that really means. Does it mean that houses actually went up in value 15% or does it mean that people are purchasing 15% more of a house than they did they prior year. It is in fact a little of both. Lucky enough I had some same home sales without improvements that show the actual value increase for same home sales is 4-8% not 15%. My point is that an appraiser needs to be able to know when and how to use that data the right way and the data itself might not be the end all be all to solve the problem to get accurate appraisals. Lets say for instance my regression analysis shows that my adjustment for square foot should be $50/SF. I put my comps on the grid adjust at $50/sf and the whalla everything goes out of whack the higher square footage comps adjusted too low and the lower square footage comps adjusted too high, because the data is not perfect. Now common sense should tell you to lower the adjustment to bring the adjusted sales prices back in line with each other as matched pairs. Are you going to stick with the adjustment just because of some stat. analysis? BTW a good appraiser does this on every report with bracketing that shows what the correct adjustment should be without doing regression analysis. I believe that big data can work very well in large homogenous communities. I do not how ever believe that it can be utilized in all situations and I also believe that it can be as unreliable as anything else.

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            Not sure why, but I’ll try one more time.
            Point 1: I’m simply trying to say, if one can not demonstrate a given point with actual data and statistics, then there is no available basis to make any claim whatsoever – and if the issue is adjustments, then without supporting statistics everything is simply a guess. One does not ever gain knowledge/experience without first depending upon statistical data – period. If you don’t agree with this statement then you do not know much about statistics.
            Point 2: You cite an example of using $50 per SF from a regression model and it turns out to be spectacularly inaccurate. Part of the beauty of using statistics to help you understand what is and is not supported by actual data is that one CAN use their knowledge and experience to better specify what you are modeling. For instance; maybe what needs to be analysed is the marginal contribution of # of sqf t difference from the mean square footage in a neighborhood. Trying this data specification very well might tell you the marginal contribution of bigger houses is $25 per sq ft over the average size of houses. What one gets out of various statistical analyses is related to how much understanding one has about the use of statistics and knowledge about data specification that might yield the most insight to whatever problem you are seeking answers to.
            Good luck with your apparent claim that experience coupled with ignorance about statistics trumps significant statistical understanding and insight to various data relationships. The idea that intuition, no matter how good or bad, is better than a detailed understanding about statistics and how they should/can be utilized to support your conclusions is just wrong.

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            Ed, so what you are telling me is every one who buys a house is ignorant because they do not run a statistical analysis. I pretty sure no one ever has or the percent is very very small like one in a million. I don’t appreciate being called ignorant because I don’t agree with the way statistics are used in our society and how they can be manipulated or made to sound more impressive to prove an incorrect conclusion. Intuition is probably the incorrect terminology I may have used. Appraiser experience and knowlege trumps statistical analysis every day. Aren’t the best stats drawn from a large pool of data? Within that data when you look at a chart of regression analysis there are points above and below the line correct? So that is the range. An experienced appraiser should be within that range without running the statistical analysis in the first place. Any one of us who has been doing this for a long time can look at an appraisal regardless of the actual dollar amounts of the adjustments and say this is a good appraisal or at least the appraiser did the best job he could with the data that he had available to him. Any one of us can also look at an appraisal and tell that the appraiser did not use the best comparables, made unreasonable adjustments and the conclusion is wrong. I have enjoyed our discussion and I do believe that there is a place for your statistical modeling and it is useful. What I have been trying to say all along is we should not just blindly jump into this big data thing without asking some hard questions that no one seems to be able to answer except for I am wrong and statistics are better. I will leave you with this- 100% of people in Jail have drunk water, therefore water causes crime. Its a statistical fact so it must be true. We need common sense, It seems to be lacking everywhere these days.

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          Have you looked at the results of a regression analysis? They are ridiculous! I just reviewed an appraiser where the appraiser depended on regression and it was crap. How would you possibly know if the results were crap on a regression analysis?

          The answer would be an appraiser that knows the market. That is it. You want proof?

          Please answer this honestly . . . .

          How do you know if the regression analysis on a property actually reflects real life adjustments?

          The other point is that you seem not to have much experience. DO you know WHY we use 3 to 5 comps?

          It is because we are supposed to use the BEST comps available. If I have the best 3, then every comp that I use after that is inferior to the three I already accepted. If you use regression analysis, you are using 100 or more inferior comparables.

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            That is precisely right Gus. You hit the nail on the head. Guess they will have to figure it out for themselves

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      I just measured a house today that was ~3,200sf and all sources of public records, including the assessor, shows it’s 6,912sf. Wonder what the AVM would “appraise” that house at…

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        That is why we say that experts in the field of measurement are important. We just think this should be done by someone other than the valuer so the valuer can concentrate on the unique tasks only they can do.

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      Duncan P. Garbutt

      I could’nt have said it better or funnier! Thanks brother!

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      Good points. I have always hand measured the properties I appraised and I have always required that of the appraisers I hire. As many commercial buildings cannot be hand measured, I then provide options like you can use plans but you must check at least a few measurements to confirm accuracy.
      I was an assessor and have known many. I do know how inaccurate a lot of their work can be. I also know how many hand measure the houses and such they have to assess.
      I do think asking the owner the size of their property is worthwhile. Heck, I know the size of every house I have ever owned. Other than price it is probably the first thing I learn about when looking at a house. In commercial you sure they know what they are buying or own otherwise you better be concerned about their ability to own real estate! I recall one commercial review where the appraiser said the 4800sf was based on plans….the owner got a copy of the report and said the building was 7200sf. I told the client to send the appraiser out to hand measure and it was 7200sf. A simple rectangular building and the appraiser didn’t measure it. Argrhrrhr.
      But, again, we propose why have the valuer do this menial task? Let there be a population of people who solely provide that service – or maybe some of the other menial tasks like photos, etc. Let the valuer use their hours doing the high pay tasks. Again, that is the idea and plan. We are not there today and won’t be for awhile. We are not naïve of the current world.

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    Looks like the article hit a raw nerve and got a lot of negative responses from mostly anonymous bloggers who say they know better.
    I agree with the conclusion that the “appraisal trade” has not risen to the challenge. And I agree with some bloggers who say the lenders ruined it . Even so I maintain the appraisers allowed themselves to be lead to death chamber when they knew better. I do question whether we were ever anything other than a trade pretending to be something else.
    I’m going to print this article and read it on paper to see if I agree with the facts cited and the reasoning process as much as I agree with the conclusion. I am glad someone believes “the sun will come up tomorrow.”

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      You see he is equating correlation with causation right? He cites a study that shows opinions of value were different than prices that occurred up to 12 months later but has no conclusive information as to why. Any appraiser knows why. The fact that most other people don’t should be supportive of our industry and not a reason to tear it down. BTW I am no blogger and most here do not appear to be either.

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        Clue me in. I claim to be an appraiser and even have a license, but I don’t know why sales prices 12 months later are different from the appraised value. I’m interested how appraisers have a corner on that knowledge and have managed to keep it to themselves.
        Maybe there is no need for appraisals that don’t “correlate” with subsequent sales prices. It seems appraisers with mortgage related assignments would be very concerned with and report declining markets to their clients if that is the cause of the disparity. To report a one day probable price is most likely of very little interest or use to anyone that reads the appraisal.
        Incidentally, I am a blogger from time to time. Welcome to the effort, it often substitutes for networking and sometimes for education in the appraisal trade. I think it beats isolation hands down except when it turns to persona attack.
        I’ll check on that correlation/causation thing when I read the post in full. Thanks for the heads up. It might change my mind about the author’s reasoning abilities, but probably not when it comes to conclusion that we need to overhaul this industry from the excavation of the foundation up.

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          Lets assume for a moment that most appraisers are competent, use reasonable comparable sales and adjustments and arrive at a reasonable opinion of value. In the cases discussed, which are not purchases, we rely on other peoples homes to derive our opinion that the bank can then use in the overall analysis of their business decision. It has been well documented that a 10-15% range in this opinion is normal and reasonable and they can consider this in their decision. That does not make the opinion wrong. It makes it consistent. That should be a good thing for the banks. The fact that 3-12 months later the market may offer a different price, (keep in mind he cites a blanket percentage with no raw data as most homes may be within a smaller percentage difference) is due to all of the items on our nifty little grid page. PFCMLP might seem familiar? These items are all subject to change and can affect price when that home we rendered an opinion on some time in the past actually gets tested on the market. People forget that value and price in our profession are snapshots in time and subject to change. If people want valuations for extended periods of time then they should be getting a different product that can account for that inherent risk.

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            I think the evidence is pretty clear that a different product is what is needed. We may never agree as to why, but now that data is easily available over the Internet real property appraisals have been revealed for what they are not.

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      The “Appraisal Trade” is nothing but a cheap chiseling RACKET. It is full of people with NO ETHICS, people with no ethics have NO CLASS. I don’t like being around them. I quit ten yeas ago. I feel sorry for you guys that have never done anything else, you just do not know how the real world works. BB

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        From all of us in the “Racket”, thank-you for “quitting”. And since you do not know me, I do find your real world comment unqualified. BTW, I read many of your historical posts, and based on most of what I read, you are a bitter, sad, and unhappy person that only complains about life. I hope you find happiness somewhere as everyone deserves being happy. They do not deserve what you have turned into.

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          The Majority of the Citizenry feel as I do that you are mostly made up of NUMBER Hitters. You have done yourself IN. You have a Lot of letter writing to do if you want to get your ‘point’ over to the Citizenry that AGREES with me.

          You are correct about one thing, I am VERY SORRY and SAD I was guided in to the Appraisal RACKET, I never met a Real Estate Appraiser until I became one. It has caused an INCREDIBLE HARDSHIP for me. It ruined the rest of my life is what it did. I am now too old and sick to re-train. It was my last shot, and I threw it away on the RACKET that was I was TOLD was a good one to be in. I was told by TWO colleges it was a FANTASTIC PROFFESION. I had NO idea it was as corrupt and CROOKED as it is, by the time I figured that out I had a Real Estate Degree and was in NECK deep. It is a RACKET and YOU KNOW IT!!! I also thought “Surely something this crooked will be cleaned up”. Boy was I WRONG about that. So good luck with your Number hitting. I feel sorry for you people that have never done anything else. Man, what A lousy life you have had. Building Fence is better than the cheap chiseling racket of Real Estate Number hitting. Boy, I heard that “All the other appraisers do it, why are you so uncooperative?” They would say that every time I refused to LIE on an appraisal. You must be one of the cooperative ones. It is IMPOSSIBLE to build a REPEAT business in that racket because the first time you don’t hit the “number”, well an HONEST appraiser has this problem, they FIRE the honest appraiser and he is BLACKLISTED. Even the CROOKS KNOW THIS that is the reason they are CROOKED. But it is the CROOKS that make it the way it IS. It will NEVER change either there are too many guys like you. BB

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            You know, even my children understand that life is what it is. That we make choices that determine what we are and how it affects us. IF our decision turns out to be wrong, it was our decision, and we have no one to blame or congratulate but ourselves. Life is nothing but personal decisions everyday, every week and every year. We make them, we stand on them as a person of character, right or wrong. You on the other hand, are like the people that hold entitlement to their chests as a flag of fairness. It is always someone else fault that I made that decision and it is not fair. Blame your professors that you were too stupid, that everyone is a crook, that you are always right, its someone else fault. I have tried to be conciliatory but being nice to you is like hand feeding a shark, lifeless eyes and nothing matters but eating from someone else handout. And if the food isn’t enough, bite the hand that feeds you.
            Enjoy your day, which I doubt you can. And you are now blocked.

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            Mariateresa Canosa

            It is unfortunate that you consider our profession a racket. I certainly do not regard myself as a “number hitter” & I do not think our profession is corrupt. I think there are a few incompetent appraisers out there, who could benefit from more training & experience & a few unethical people who should not have a license at all, but I do not feel that way about most of us.

            I no longer do any lender work, except for a few hard money loans. Thus, I do not get a sales contract & I am very happy with that. Nobody tells me what they think the property is worth or tries to bias the process. I do appraisals for estates, divorces, bail bonds / property bonds, dissolution of partnerships, hard money loans & once in a while, just the owner’s curiosity. There is no number to “hit” & I would not do that anyway.

            Even in the past, when I did appraisals for lenders, there were plenty of times that I lost work because I gave an honest opinion of value & it did not happen to match the sales price. That’s just how it goes sometimes.

            I stopped doing appraisals for lenders when the HVCC, followed by Dodd-Frank, went into effect. I decided I would not work for AMC’s & I am glad that I never have. I wish my fellow appraisers had done the same thing & effectively “gone on strike” against AMC’s, but that did not happen. I believe that it would have been very difficult for a short time, but that we would have prevailed eventually with an alternative that makes more sense, such as not giving the appraiser the sales contract.

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          I forgot to tell you, I regard the comments of anyone that is AFRAID to sign their own NAME to a publication as pretty much unimportant. I always sign my OWN REAL NAME. I do not HIDE behind anonymity, like a peeping tom. BB

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            I am sorry that you again must lash out with your anger and frustration. By the way, my friends call me Dale. Try reaching out sometimes instead of holding a fist and shaking it at everything. Have a nice day, if you can!

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            I sign my name, who are you Dale Evans?? How is Roy doing??

            Defend that lousy trade all you want the Public and *I* know better, you are not getting away with anything. It will be over soon for you guys, BB

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    I am 63 years old and the Real Estate Appraisal Racket is the SECOND most corrupt thing I have ever seen. The only thing worse is INSURANCE. Of course, Real Estate Appraisal is Corrupt because BANKING is corrupt. I went back to college in my 40’s to learn that “trade”. I had Counselors and TWO different colleges tell my it was a wonderful “profession” and lucrative. I have college professors that told me it was a great Job and I would be good at it. I WAS good at it, but nobody wants that, all they want is a LIE.

    When I was young I was involved in a big way with Horse Racing. I have had every job on the Race Track, I wish I had of stayed with that even though it has collapsed. BUT HORSE RACING is more HONEST and better policed that Real Estate Appraisal or Banking or INSURANCE. I should NOT leave out the Stuck Market. The Kleptocrats have WON!!! Horse Racing is MUCH more honest than banking. Man, what leadership we have. In the end it is the PEOPLE’s FAULT for not demanding honesty in Banking and Business.

    You would not believe the DOPES that have tried to pressure me in to inflating an appraisal so they could put themselves and their whole family at risk of losing everything “they have”. really they don’t “have” anything, but a 30 year note they pay interest on for YEARS before anything significant at all is applied to the “principal”. IDIOTS one and all. And this “Thinking” that a “house” the house you live in is an “investment” that is a bunch of crap TOO. Real Estate Agents and Loan Officers are the ones that come up with that. If that is your best investment, you ain’t invested worth a damn. This believe you can build houses and streets in to infinity is GREAT FALLACY as well.

    Just building houses forever to have “an economy”. What is the matter with people??

    I have not done an appraisal in ten YEARS and glad of it. We have NO law enforcement in Texas for Real Estate, I have filed complaints again and again on Crooked Appraisers, they give them a ‘warning letter’ when they should REVOKE their License. The Texas Appraiser Licensing and Certification Board is just a bunch of lazy dopes that are watching the clock for Five O’Clock so they can go home.

    I predicted the Collapse, I told my Congressman in 2003 that the next collapse would make the Savings and Loan Looting “look like Sunday on the Farm” and he told me I was crazy. He opposed me so VIGOROUSLY that I knew he knew, he was just “putting on a show” for some of his “groupies”. This “meeting” was recorded by the Congressman. I TRIED to get some relief but no one cared.

    Most of all I hated sitting in classes with other “appraisers” who didn’t have a clue and were just lower than used car salesmen. They never saw a number they would not hit.
    I never NEVER ONCE lied on an appraisal. Never. That made me unemployable. It even broke my health. So now, I am in my 60’s and have no health insurance or career. I paid my dues in that racket, and because of the Lack of law Enforcement and the lack of ethics in Banking, it was all for nothing.

    So all of you number hitters out there, you have your fun, I hope you all die broke. I have NO RESPECT for any of you. BB

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      Gentry Watt Taggart

      I hear you man. One of the members of the TALCB told me that he likes to look at the contract because it gives him “a sense of what the market is” and that even though he may have found what he thinks are good comps without it, he “could be wrong.” Oh bull!!!!!!!!!!!!! What a crock of crap. This all makes me want to find something else and I have an idea, but I just have to figure out if I can make it on the pay cut.

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        I learned a LONG time ago, MOST appraisers CANNOT do an appraisal unless somebody shows them a target. I have had that proven to me time and time again. Nobody should ever take an assignment they could NOT do BLIND if they had to. Of course USPAP says you must TRY to get a copy of the contract and “analyze” it. But I did not EVER allow the “sales” price to influence me. It just is what it is and that is ALL. I learned to get my money UP FRONT ONLY. Then when it does not “make value”, well its just too bad. Of course they never call me again. They call my “competition” that hits any number they want.

        What I hated was these Bankster Low Life that would call me up at 9 PM at night, 30 days AFTER I did the appraisal and tell me, “we need the Value raised $75,000 because the borrower’s credit is not as good as we thought.” Well, to me that is BANK FRAUD, and they are giving out the Borrower’s Credit Information to someone that is not supposed to have it. The answer from me EVERY TIME was NO.

        Man, it takes that TALCB over TWO YEARS just to get to a complaint and then they don’t do anything to them. There are WAY too many appraisers in TEXAS, certainly way too many of them in the area I am in. That is the reason it is so easy to find somebody that will hit any number you want. It is so UNFAIR to Honest appraisers, I hope there are a few of them around, if there is, it is UNFAIR to them to have the crooks just handed a wrist slap. And TEXAS has the HIGHEST FEES in the nation. For example on a Broker License it costs nearly $600 bucks to renew the 2 year Texas RE Broker license. I am licensed in Oklahoma as well, it is only $225 for THREE YEARS the same LICENSE!! In Hawaii the same license is $127.50 for two years, Louisiana $70 bucks yearly, Arkansas $40 bucks yearly. There should be an OUTRAGE over THAT ALONE!!!

        Texas has the highest FEES in the nation on EVERYTHING. Man, this state has gone to pot. I am a 100% descendant of Texas Pioneers, and my ancestors would GAG if they saw what has happened to our state. If I could get rid of this farm we have here, I would be GONE. But thanks to all the BANKSTERS and their buddies the crooked real estate Appraisers they have driven the world economy in to the ditch.

        Also CHRONIC CRIME has moved in where I am, it is so DANGEROUS here you would not believe it. Been Burglarized about 30 times, three bloody assaults, a home invasion, an arson and countless Vandalisms. It is EXTREMELY Dangerous where I live. The County road has been gated off for nearly 25 YEARS now because of the CRIME!! I was shot at last year out here trying to photo a Dope Stasher’s License Plate. Welcome to Ellis County Texas. BB

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      As a new appraiser to the field – 5 years later – I am thrilled to say the industry has not only improved its stance on standards but it is still thriving and lucrative. And I absolutely Love what I do.

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    The 50/50 above and below the contract price argument has statistical relevance for the discussion, however, there is almost ALWAYS a range of adjusted sale prices. No mention of that for an imperfect market of unique products – something statistics cannot account for. Another thing statistics cannot account for is condition differences between properties (which I also see many appraisers ignore when I do reviews, sadly). Condition and updates can never be accounted for by an AVM – that takes human eyes and brains.

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      All agreed Matt. Re the condition of the property, our idea is that an expert in the world of inspection would handle that part for the valuer. When I had a commercial AMC and we did Evaluations we simply contracted with a national firm to provide an inspection of the commercial property. The cost was under $100 as I recall. Very cheap in comparison to the time it would take us – even if the property was near our office by chance. However, these are done nationwide for banks so no way could we inspect 99%+ of the properties. The firm provided us a 6+ page document with all kinds of information about the subject noted….photos – especially of deferred maintenance. et al. None of us appraisers can come close to what these professionals do – unless you happen to be a contractor or engineer or such. Our thought is to have others do as many of the tasks as possible in a valuation and leave to us valuers only what we are needed to provide – a range of value as you and almost everyone suggests. Albeit, we are fine with a whole menu of prices and values….but many of those items are simple and will be provided by non-valuers – just as they are now. A quick thought came to mind….there is nothing prohibiting those quality and condition ratings FNMA came up with in regression analysis. And thinking out loud I believe a world of people who only did those ratings would be better than the current method of having appraisers provide such. People who did this all day, every day would be more consistent. Albeit, the way FNMA can now see what numerous appraisers rate the same property that can force the same rating be used for all analyses. Lots of thinking out loud and this is stuff for down the road. Thanks Matt for taking the time to provide some quality comments.

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    Very flawed ‘logic’ in this contrived article which is clearly looking to justify a pre-determined outcome. So many holes in his arguments. Its never about ‘averages’, and we’re not robots, and robots/computers cannot actually ‘see’ the property and its individual peculiarities, setting, condition etc, and not driving by the actual comps won’t result in a clear picture of how they truly compare to the subject either. Additionally, real estate agents get paid when something sells & are not focused on arriving at true value, as they are influenced by their client. Further, unless the buyer is very knowledgeable and has done a lot of homework, he doesn’t know whether the house he’s considering is high or low, or setting a record; he’s relying on the real estate agent (biased) and the appraiser (supposedly UN-biased) to tell him where the property market value is, which may then kill his loan & save him from overpaying, or confirm that his rationale re: price was accurate. Considering how the housing bubble was all the appraisers’ fault supposedly, and had nothing to do with seller greed, nor buyers’ desperation, nor investment money coming from China, I find it ludicrous that appraisers are at once being spanked behind the woodshed, and at the same time told what we do is irrelevant, and all they need is a machine with software plus datamining. Ridiculous.

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    Perfection is unattainable in an Opinion of Market Value. The Wizards of Smart in the Appraisal Industry have allowed the word/phrase “Opinion” and “Market Value” to be redefined by the Lending Industry on it’s quest for numeric perfection and most important – transferrable liability. We’ve been tagged “it” in a game of “perfection tag” we cannot win. Here’s an idea: Loan Value, Market Value. The Lending Industry wants numeric perfection? Give it to them with a regression based Loan Value – no opinions, just predefined number crunches and no transferrable liability. Consumer wants Market Value? Give it to them under current standards, opinions, normal biases, and human purchase decision imperfections all baked in. The people running the Appraisal Industry from 40,000 feet have finally locked themselves out of the cockpit…as George has demonstrated.

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    Raw, unadulterated truth based in factual reality. Bravo. Great article. I hope you survive the onslaught of negativity that has and will undoubtedly surely ensue. You two are my new hero’s.

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      I’m not sure that suggesting I get my square footage calculation from Google or the property owner counts as “based in factual reality.” Might want to look for a new hero. Maybe try one that knows the difference between plural and possessive.

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        The article brings up numerous salient points. Pointing to one point and making that your leverage to impune the entire article isn’t exactly what I’d call honest.

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    I would be willing to accept the residential appraisal industry to be made obsolete by AVM’s. I’m just wondering how AVM company’s would feel if they were liable for every value they produced just like the appraiser is. I can guarantee they wouldn’t be trying to push for an automated system when the liability shifts to their table. They can claim about how efficient their data models are and how accurate their valuation results are. Question to all those company’s. Are you willing to get sued by clients when theres a problem with your values? I can guarantee that if legal liability ever shifted onto the AVM, there would be a mass exodus from the industry. They can boast about how great their product or service is because they are responsible for nothing. Unfortunately for the appraiser, we are liable for the values produced.
    And whats up with this value issue of over valuation? Why not focus more on bank regulation fluctuations rather than appraised values. Banks lower interest rates, demand increase. Banks increase rates, demand diminishes. Banks lower interest rates, prices go up until a peak is reached. Banks increase rates, prices go down. Eliminate mortgages. they have too much of an effect on value. Let a true market take place and watch prices respond to true market principles rather based on the ability to borrow.

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    Gentry Watt Taggart

    By far the stupidest thing in USPAP is the requirement that we read the contract and analyze it. Hey morons, would you go to Jarrett and by the old lady a ring and then walk into Zales and say, “I just paid $5000 for this rock, what do you think it is worth?” Oh hell no!!!!!!!!! You would say, “I have this ring and I want to know your opinion of its value.” Why should real estate be any different? Why do we need to know the pricing? If you make the argument that we need to know the rights being appraised, then have the examining attorney prepare a statement of what we are to consider. This deal about seeing the contracts is just STUPID. Most people are not iron willed as I am where I give not one damn about what the contract price is. I am not a people pleaser and I have probably violated some idiotic part of USPAP by calling it stupid, but that is my First Amendment right I think.

    But I take issue with the author saying that the “art” has failed us for the past 80 years. That is wrong too. Just because we have a bunch of yes men in the business does not mean that the qualitative is not important. Perhaps he should go out and see how deals are really made by brokering full time for a couple of years. If he did that then he would see the “heart” and “head” issues of typical market participants. Without that experience, you cannot be a real good appraiser in my opinion.

    I come from a livestock background. Let’s use Angus cows as a metaphor. Now, you have the strictly performance breeder representing the author. These guys think that all the matings should be made based on performance measures and Estimated Progeny Differences, with no regard to the phenotype of the cow. Just let the computer tell you which bull to put with which cow and it will all be ok. Really? That is how you get animals that are entirely unfunctional and structuraly flawed to the extent that after a few generations there will be big problems that could have been avoided, but the almighty computers did not pick up on it.

    Then, you have the show steer guys who go strictly on looks. They do not care about any performance issues. It is all about appearances with them. Now, their cattle are very structurally correct quite often, but most lack the ability to perform well enough to be commercially viable outside the show ring environment. They are like the pure artists in this business.

    Commonsense says that you have to have a bit of both. My view is that you have to have certain levels of productivity and efficiency to survive economically. But, you must also have a line that is functional and structurally correct enough to have longevity and sustained production and the ability to transmit that from generation to generation and work in a myriad of environments.

    And so it is with appraisal. We may need better justification for what we do. I personally have used regression data to prove points. I rely heavily on matched pair data because in small markets, it often approximates population data because you have the truly relevant sales in the 3 to 6 that you gridded. I also believe that you have to see the property. You need to measure the property. You have to understand the heart issues and the head issues of the property. You cannot reliably say one way or the other. It needs to be a blend.

    In closing, go read in the Book of James about Faith and Works. One without the other is irrelevant. It takes both. Same goes in the Appraisal business. I just love the pontifications from those in the Ivory Towers.

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      Mariateresa Canosa

      You are correct about the sales contract. It should be illegal to give an appraiser the sales contract or mention the agreed-upon selling price.

      We already do many appraisals with no sale contract, including estates, divorces, bail bond / property bond, refinances, etc. The subject is what it is. The comps are what they are. None of this changes just because the subject is being appraised for a sale transaction as opposed to a divorce or bail bond, etc.

      When I appraise a property for a bail bond / property bond (I do many of these), all I get is an address & sometimes some relevant information about a recent remodel, if applicable. The bail bondsman I appraise for, does not even tell me the amount of the bail. All he wants is an unbiased estimate of value & that is what he gets. I never even find out a result (Was the value high enough to get the person out of jail? – I never know). I have done these for a dozen years & we have never had a problem. I am very careful. I do frequent Paired Sales analyses to determine appropriate adjustments.

      The bail bondsman never tells me anything that might bias a result. We should revise USPAP to operate the same way & stop giving appraisers the sale contract & telling them a sale price.

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        Gentry Watt Taggart

        Common sense right there. Something that is in real short supply in this business.

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        It is in, or WAS a part of the appraisal practice and therefore required by USPAP to TRY to get a copy of the Purchase Contract from the client so it could be PERUSED for CONCESSIONS etc. The idea is a GOOD one, it is just that the low class of appraisers we have cannot find their butt without “help”. And of course the Client “wants it to make value”. So I agree it would be BETTER in the long run, maybe if the appraiser is hired “blind”.

        But in the Real World how do you keep something like that a SECRET when it is in the MLS and other forms of Advertising like Lands of America and so on. 99% of the Lender Coercion I had to put up with was VERBAL. Also 82% of my business was RE-Finance.

        You might outlaw the receiving of a Contract, but you CANNOT, you can NEVER stop an unscrupulous appraiser and client from communicating the “Value”. The way it is SUPPOSED to be IS the appraiser is supposed to have enough CLASS to not be influenced. BB

        This racket will NEVER be fixed. Never forget I told you that. BB

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        I tried to reply to your Post you sent me. Telling the truth and telling it like it is is NEVER unfortunate, it is the way it is supposed to be. I will never apologize for that.

        If you are an honest, competent appraiser, more power to you, YOU are not a Racketeer. But the data and this article shows this is not the majority. I worked for AMC’s SOME, but I had them over a BARREL every time. I worked RURAL Properties, Farms and Ranches. I got all of my business from the INTERNET, and the fair haired City Boys that always hit the number in the suburbs could not do RURAL on LAND properties. So, I told the AMC, I won’t NOT cut my fee, in fact I wanted MORE than the Going RATE because I was working in BFE, and I wanted the WHOLE FEE UPFRONT. So they PAID or they did not get it. However, you can never charge enough MONEY for those types of appraisals. So it was NOT WORTH IT in the long run. I quit and am glad I did.

        I resent very much that college Counselors told me what a Lucrative “Profession” it was. Neither is true. BB

        I am glad to be out of that RACKET, that is what people call it, and so does the PUBLIC. If you are one of the Honest ones, good for you, you have NO NEED to defend yourself.

        If you are one of the crooks, I hope you die broke, BB

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    Woody Woodpecker

    What a bunch of bovine fecal matter!

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    I wonder if George Mann & Eric Moskau ever availed of the “Extraordinary Assumption” when they were appraising properties early in their career. One of the limitations in real estate appraisal is that we are never afforded the luxury of physically examining in detail, like we would our subject, our comparables to obtain an accurate comparison. More often, appraisers have to rely on the integrity of the realtors who provide the information in the multiple listings or to a great extent, on their Experiences to see through the pictures and descriptions presented.
    I agree that reliable statistical data is essential to give more credence to the report. However, I should also caution that the result of any statistical output is reliable only if the data used in the analysis is reliable. I am not sure whether deception and/or misrepresentation can be accurately quantified. I also would like to ask George and Eric if they were able to predict the real estate crisis caused by the Savings and Loan and the more recent crisis of the 2000’s. I believe that in both crisis the Banks and the Regulatory Bodies involved had an immense responsibilities for the failure. Also in the recent crisis, the valuation industry was given very little blame. It is good that every time a crisis happens, studies and analysis are conducted to hopefully result in some effective measure to avoid another billion dollar bailout. This money came from the taxpayers and not from the banks. In the large scheme of thing, when a system fail, we should always look at the one who had a lot to gain from that system.

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      Real quick re predictions yes The Great Depression II starting in the Summer of 2005 was predicted by me and a few others and the subsequent 2009-2012 markets were also predicted quite accurately – my clients who paid for such would agree. But, WAY better than me was Tom Inserra who has a comment on this board who back in 1994 predicted this last crisis to the year and the loss amount also!!!!!!! In writing!! Yes predicting bubbles can be done. Not by many, but by a few.

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    Regression will not save the world. It is a useful tool and should be part of the appraisal process, a larger part. I look forward to the day when I can type in “pink house” and get a supported adjustment for an ugly exterior without spending an hour searching the MLS for another pink house!
    By the way, this isn’t anything new. The industry is changing, and should change from what I have seen of CUs results. Until the industry demands higher quality, and pays for it, form fillers will prevail or be replaced by AVMs.

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      Agreed Terry.
      As a future paper will show we simply suggest (at this time…as I say elsewhere we are considering all of the feedback we are getting as heck if we have the end-all solutions) that the Sales Comparison Approach will be much better with regression analysis used than the traditional ‘3 sales and a cloud of dust’ as I coined it 20 years ago. But, we also think the Cost and Income Approaches should be a must in certain valuation products. I hear from many residential appraisers that all 3 approaches should be required like it was sometime in the past. None of us are saying that only AVMs should be used. Heck, we are proposing a profession of valuists would be a good thing to have in the future – that won’t exist if we thought computers do every valuation.

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        George – There are still many appraisers spending way too much time developing their analysis and conclusions who will take offense at the tone of your article. But I understand your point.

        The industry needs to change, and it will have to come from our clients. We’ve seen in the past that requiring change from appraisers won’t work its way up the food chain. I also think college level math requirements are coming, especially statistics. Most appraisers could spend their time more wisely developing multiple approaches to value, as you suggest, rather than circling the block three times to get a comp photo without a car or person in the way! Throw in an AVM, and let the valuist reconcile all the data to a single price point.

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          Exactly Terry – a possible “4th approach” as I suggested and Scott named a “Statistical Analysis Value”, to satisfy the math model type of thing we have all dealt with since Zillow came out with the dam Zestimate !!

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        George, I feel sorry for you.
        You don’t have the street Cred. that almost all of these guys do.

        You understand the numbers, but you are a Pointdexter….

        you can never relate to a guy that has been in the field for 20+ years.

        Don’t presume what he knows and has seen.

        We KNOW math is an asset sometimes, but WE KNOW it can be misleading and harmful to a lender.

        Don’t presume to come to this forum and consider yourself more knowledgeable and smarter than any of the dedicated men and women here.

        Wave an MAI or SRA in these faces and you will be laughed at.

        But you are right – in 40 years of my experience in real estate, Appraisers need to help each other, now more than ever.

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    Who’s really wearing No Clothes!? Are you kidding?
    Show me an appraiser that comes in below the appraised value 50% of the time and above it 50% of the time and I’ll show you someone on the unemployment line 100% of the time. The critics in this article are either ignorant, or pretending to be, of the reality of the appraiser’s situation. AMC, AMShmeee. They do not stop lenders from dropping an appraiser from their “approved panel of preferred appraisers” with that AMC. I was getting loads of work from 1 particular lender, thru an AMC, and the minute I came in below the contract price on a sale I never got a lick of work from them again. This is not an isolated incident. There is very little appraiser independence. That’s the real pink elephant in the room! Why? Because the Government is involved in backing the loans. If lenders had their own money on the line they would weed out the bad seed on their own or go bust. But the Government buys loans, backs loans, insures loans, and if all else fails…bails the banks out. Why in the world would a lender want an honest appraisal when all the profit is theirs, and the risk is on the tax payer? Who isn’t wearing any clothes???

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    Who’s really wearing No Clothes!? Are you kidding?
    Show me an appraiser that comes in below the appraised value 50% of the time and above it 50% of the time and I’ll show you someone on the unemployment line 100% of the time. The critics in this article are either ignorant, or pretending to be, of the reality of the appraiser’s situation. AMC, AMShmeee. They do not stop lenders from dropping an appraiser from their “approved panel of preferred appraisers” with that AMC. I was getting loads of work from 1 particular lender, thru an AMC, and the minute I came in below the contract price on a sale I never got a lick of work from them again. This is not an isolated incident. There is very little appraiser independence. That’s the real pink elephant in the room! Why? Because the Government is involved in backing the loans. If lenders had their own money on the line they would weed out the bad seed on their own or go bust. But the Government buys loans, backs loans, insures loans, and if all else fails…bails the banks out. Why in the world would a lender want an honest appraisal when all the profit is theirs, and the risk is on the tax payer? Who isn’t wearing any clothes???

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    Oh, and by the way, I just did an appraisal today of a loan with 100% financing plus 3.5% seller concession to cover the closing costs. If you make loans to people with absolutely no skin in the game…what do you think is going to happen?

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      It is just a continuance of the same old scheme since the Great American Buildout was over in 1970. It is “part and parcel” of Keynesian Economics. Keynes was WRONG with just about everything. The only things he got right were, One at the Convention that made up the Treaty of Versailles he said that “the terms that were strapped on Germany would result in another World War”, he got that right. The other was “in the end we are all dead”. He was correct about that as well.

      This is part of the “You must SPEND yourself in to Prosperity” which has now become “you must Scheme, Steal, Print, Borrow, Loan and Scam your way in to Prosperity”.

      Keynes was also a HOMO and a pedophile. He liked young boys. He trolled the streets of London and everywhere else he went looking for them too.

      So, as long as both parties, and the Machiavellian people that own the world’s Central Banks practice Keynesian Economics, it will continue. It is a result of these maniacs thinking you can build houses and streets in to INFINITY. You can’t, but they act like they do not know that. I believe they do know better, they just want to LOOT the system. They have been aided and abetted by crooked Appraisers.

      Remember I told you that as well, BB

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    In the long haul, the safe bet is you get what you pay for. Expecting appraisals to be both quick and cheap is almost a guarantee quality will suffer. And it is.

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    As an appraiser I am compelled to go point by point on this article.

    The FNC analysis revealed 87.7% of appraised values were equal to or higher than the contract prices. This supports other studies we have heard about that found 90%-95% of appraised values were at the contract price or higher. Obviously, a true distribution not influenced by contract price would have a 50%/50% split above and below the contract price.

    87.7% Equal to or higher than you say. How many equal to and how many higher than?

    Other studies you “heard about” you say. I heard about some studies also. Like this drivel.

    True distribution? You mean statistically true based on uniform data sets with a large universe of verifiable and consistent data. Have you observed the real estate market lately? You are trying to apply uniform statistical analysis to something that is subject to and affected by many influences and are disappointed that you can’t quantify the results?

    in about 75% of cases the appraisal value disagrees with the contract sale price. So, out of the gate we have at least 75% of cases in which some error is present.

    Some error? You mean the appraiser had market data contrary to the contract price and reported it. Why is this an error? And by how much were they off? Many contracts are written for amounts such as $279,000. So if I appraise at $280,000 an error has occurred?

    For the subset of 2,076 cases having sale and value dates within 12 months of each other, 60% of the appraisals were within +25% of the sales price. Looking at this from a different perspective, 40% of the appraisals did not fall within 25% of the sales price. This variance is disappointing.

    This data does not indicate where or when these 2,076 homes were sold except that they were within 12 months from appraisal and sale. Can any appraiser imagine an area or a time where you could find 2,076 homes that sold within this range within 12 months? Is this enough to conclude that the appraisal industry is wrong and needs to be scrapped?

    In surely the most comprehensive study ever performed, Digital Risk analyzed 725,000 loans by hand. At an average of 4 hours per loan, they invested over 3 million hours in this project.
    They engaged several fee appraisers to appraise each property and they also obtained AVM data as available. Staff appraisers monitored the process and performed desk reviews. Appraisals were performed in 2011 and were all single unit residences.
    Statistics showed that with a 95% confidence level (i.e. 2 standard deviations), appraised values had a +15% range. Another sample of 200,000 loans between 2010 and 2013 concluded 1 in 7 appraisals contained material error. That was defined as the appraisal value being over 20% higher than true economic value.

    So your most comprehensive study included AVM data? And this occurred in 2011 and showed a 15% range? This has been shown through multiple studies. Guess what, when you ask for an opinion of value based on other sold homes and you use AVM data there is going to be a range. This is called consistency.

    Furthermore you say that 1 in 7, (14.3%) of appraisals from some other data set that you don’t discuss shows a 20% higher appraisal than true economic value? What is true economic value? Does anybody remember market conditions from 2010 to 2013. They were fluid. I do not agree that 14% of 200,000 loans that came in over “true economic value” in a moving market is grounds to discredit the entire appraisal industry.

    Since 1992, I have been part of over 40 due diligence/merger & acquisition projects. The projects have been coast-to-coast and involved portfolio valuations ranging from $100 Million to $7 Billion. Properties included both commercial and residential.
    For all of the projects, appraisals were concluded to be 17% to 22% overvalued. In all cases, the primary component of the average error was an inferior appraisal report. A small part of the difference could be attributed to time between the appraisal and the due diligence project.

    Mergers and acquisition projects? So the taking over and selling of financial products derived from mortgages didn’t net you the amount of the appraisals? That were done when? and for what purpose? This includes both residential and commercial? How much of each? A small amount is attributed to time? How much? Why would your merger and acquisition projects be grounds for dismissing the residential appraisal industry? Maybe you should analyze your projects better.

    “Regression analysis is superior with regard to the comparable sales data selection. The ‘traditional’ methods contain a high potential for data bias, because the appraiser often engages in the highly questionable practice of ‘data mining’ by selecting comparable sales to support a preconceived value conclusion. In contrast, regression relies on an unbiased random selection of comparable sales.”

    Where is the data? I and some of my colleagues use regression analysis programs and the comparables it selects are more often terrible comparables. On line web sites use this technology and are often very far off of reasonable. Yes you can use this for the extraction of some adjustments, as long as the data set is uniform and expansive. Otherwise it returns adjustments such as $50k for a bathroom in a $200k home. It is statistical analysis, it is not intuitive. This is a tool for us to use, when appropriate and not a replacement.

    Appraised values are at best accurate to a range of +10% to 15% with one study suggesting it is as high as 25%;

    Accurate compared to what? An appraisal is an opinion as of one day. After that everything is subject to change. Again, a range of 10 – 15% is well documented. If you are looking for an investment vehicle or some other sort of risk analysis this sort of consistency should be welcomed. Are you equally upset that the oil market has not been “accurate” lately? This “accuracy” is undefined and un-quantified.

    Adjustments are supported only by peers’ adjustments and peer behavior was a contributing factor in the bubble effect in the early 2000’s.
    Really? Not deregulation, the scrapping of Glass-Steagall which has been proven to be the underlying impetus for the entire crisis? There was a market reaction and we were all along for the ride and if you think for one second that, “if only” those darn appraisers had not made those adjustments the crises would have been averted then your head is firmly in the sand.
    This author is in the bag for AVMs and other valuation methods that will never have the intelligence and the scrutiny of a good appraiser. Yes there are bad seeds and yes some appraisals seem unnecessary but there are also countless instances where we have saved people money, reduced risk, corrected bad data and informed market participants to add a much needed layer to an industry that is subject to so many influences. Appraisers that see an article like this need to stand up and defend our profession.

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      WHO else wants a NEW 1004 with check boxes or something else instead of this tedious UAD junk we have been dealing with for a few years now ?

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      Awesome Post. You are right on. This is exactly what I was trying to say, but you are far more elegant than me.

      Use regression analysis to prove what a computer would pay for a home. Use appraisers to find out what a human would pay for a home.

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    Russell Jakubauskas

    I don’t feel like getting as specific as CSTILES, but I think the points made are clear. The article is a prime example of unsupported conclusions based on mass statistical analysis from undocumented and suspect sources. Questions that arise involve comments such as: 1)”true economic value” – what the hell is that?; 2)The assertion that when an appraisal doesn’t “agree” with a contract price, it is assumed that the contract price is “correct”. The question here arises, how often do we as appraisers, find that we are dealing with “knowledgeable buyers and knowledgeable sellers”? Other concepts such as the term “Valuist:” are comical. Guess who invented this definition? The authors of the article. The bottom line here appears to be that mega regression analysis is the basis of all real estate valuation and all else is garbage. This essentially tells us that MOUNDS of data, however irrelevant, will produce credible valuation results. To put it crudely, if we study thousands of apples and oranges, we will establish the value of pickles without the shadow of a doubt, just as long as we have mountains of data on apples and oranges. Right?

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    I’m not overly impressed by George’s whopping 5 years in the field as a fee appraiser and then working for financial institutions reviewing with that little experience in what it actually takes to do this work. Good luck eliminating the appraisers. The banking lobby tried that with the drive-by products and AVMs and I don’t see a whole lot of those products being relied on much any more. Further luck in non-disclosure markets. Of course a majority of time the contract prices are supported. Real estate agents are doing pre-analysis as well. Appraisers are there for you and your institutions, George for those times when you need us–when the agents got it wrong and your borrower is paying too much for a property. We’re also there to call out repairs that protect your asset. I, George, have been in field work for over 30 years and have seen the results of those pendulum swings when the banking lobby tried to eliminate the appraiser. Recessions that you caused, not us.

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      I usually don’t reply to every comment as it just provides fodder for people to find a single word or sentence they disagree with and takes away from the big picture of an article or paper. But, watching The Master’s is mindless and gives time to have fun replying to most of the comments.
      The last sentence of the above comment rocks – I caused a Recession!!! Albeit I did label it The Great Depression II in the Summer of 2005 when I said it was starting.
      I doubt I could list any set of qualifications and everyone be satisfied I have experience in their world. But, after every review class I teach I have at least one fee appraiser come and say gee I learned a lot about what bank reviewers do – I never knew they took on all of that risk re values, I never knew how much work they have, I never knew how much pressure they are under and protect us fee appraisers from, et al.
      My 5 years of fee appraising was in the S&L Crisis in South Florida and I would say none of us have had a more difficult market to learn in. My assessment job involved valuing $1 Billion in property every year. As a reviewer me and my reviewers probably averaged putting our names on around $1 Billion in real estate each year. Many commercial reviewers put their name on 250-500 valuations each year and residential reviewers can easily hit 1500 valuations per year. Much more than any fee appraiser does.
      My record was valuing $7 Billion of real estate in 10 days in 2009. That was a fun assignment for a bank. I doubt many fee appraisers put their name on a $1 Billion of real estate unless they work in the largest cities. But if someone does, I am sure they will relate to the 250+ reviews I place my name on the value with equal responsibility and risk to the appraisers, relate to me having to be familiar with dozens of markets all over the country, et al. A bit more challenging than sitting in one market all year long. But, to each their own preference. I prefer to keep up with markets all over the nation and world, than be limited to one or a few markets in one geographic area.
      I’ve valued properties in probably 40+ States and a few foreign countries.
      Also, have eminent domain experience which is the toughest work in our industry.
      It’s not a contest. Dollar amounts and annual quantity don’t make a person good or bad…maybe experience. But, as reviewers joke about many appraisers – one year of experience 25 times over is not impressive:) If you don’t learn constantly, your peers and clients will notice. No need to be impressed with any of the above. I’ll personally put my experience in the industry up against any one in the world – and a few people here and there will surpass me. I doubt they also avoid going around trying to shout out their experience – most of us probably avoid thinking about all of the hard knocks we have been thru:)
      I forecast the next major bubble to occur between 2027-2032….in the interim there will obviously be 3-5 recessions. Let me get to work on causing the next one:)

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        “I’ve valued properties in probably 40+ States and a few foreign countries.”

        Congrats I guess. And in how many of those areas were you geo-comp? I’m guessing very few.

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    Trusted as much as the weather forecast; yet we (the populace of this country) continue to allow politicians and others to pour untold dollars into predictions of impending climate change doom and gloom.

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    Sounds like someone wrote an article about something they did not research or confirm data.

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      The best part is that said article was about, at least in part, complaining about a lack of research and confirmation of data by others.

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      Feel free to state what was not researched or confirmed.
      The studies are simply summarized and readers can go research them like we did. 2 studies ‘we heard about’ we could not find anyone still at the two Top 5 Banks that did them when we were made aware of them. So, we just left those at a brief note. Any other studies anyone is aware of please share it with all of us.
      The part simply exposing how little support is in the vast majority of appraisal reports is based on lots of experience and interaction with reviewers and clients of appraisal reports. We see reports all across the nation by hundreds and thousands of appraisers over the years – certainly more than a fee appraiser ever sees. Reviewers/Clients can likely provide a lot of factual stats on things like how often appraisals are rejected, or values changed, or how often they see adjustments supported et al. The statements in the article I guaranty would be supported in total.
      But, again, the overall idea is to develop a future valuation profession that is WANTED by clients…..

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    Thank you for stimulating discussion on the important topic of appraiasl quality. The Winter 2012 CRE Finance article study mentioned can be found here:
    Regrettably, the study does not in my opinion correctly address the issue of Appraisal quality. The context of the “study” is loans made at the peak of the market and then “liquidated” from 2007 to 2011 after the market crash. The gap is therefore more likely driven by changes in market conditions. Also, in a liquidation, the “price” is often things like bulk note sales (which are not sales of individual properties), porfolio sales (at bulk discounts). Finally, servicing systems of record at that time had no way of distinguishing between BPOs, AVMs and Appraisals. Thus, it was common at the time to record an AVM or BPO as an “updated appraised value”. Thus, unless one were to take the time to go through each loan file and examine each appraisal, there would be no way to determine if it was actually an appraisal or some other valuation. Having spent 10 years working on loan liquidations, I find it more than just a coicident that the “error rate” reported is pretty much the same as average liquidation recovery rates. Thus, the study really doesnt’ measure appraisal quality. It simply reports recovery rates of distressed assets after a market crash. Appraisals aren’t expected to forecast liquidation price or bulk selling prices, so its like comparing apples to oranges.

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      Thanks Tom for taking the time to analyze a study in detail.
      As we have discussed privately, all of the known studies were presented and the results are consistent with analyses performed by very competent people with quality data and all forms of price and value compared as well as commercial and residential data used…..all across the nation, also…..over 25+ years of data analyzed at various times.
      Good stuff though Tom….nice catches and questions. A lot better than the ‘hogwash’ and such of those who haven’t a clue how much work went into the studies.

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    Wait, you guys can’t hit the moving target with a pea shooter?, Pffss it’s easy with my shotgun and bird shot. You may not like whats left over though.

    Easiest solution is to modify the definition of market value, buyers and sellers are so stupid anyway. Lets just call it “push value” and give prizes and awards at closing.

    I’m trying to catch a butterfly with a net and you suggest using a AR-15?

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    Do buyers and sellers use regression analysis? Do subjective interests and whims enter into very residential purchase? Are buyers and sellers perfectly informed and rational?
    If the answer is no to any of these questions, than a computer model will not be able to estimate or account for market reaction. Yes some adjustments are not provable or conclusive based on regression or even paired sales. Appraiser knowledge and experience is there to compensate. Trying to get perfect mathematical modeling to account for, and predict the behavior of families acting, at least in part, on impulse is not going to work. The lenders and builders will eventually succeed and eliminate the appraisal “trade”. The Realtors, who are now among the most vocal group against appraisers, will line up to dispute the AVM results. I think I will be around to see this come through. It will be fun to watch.

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      That would be fun to watch re AVMs.
      Can regression analysis answer a lot of the questions you made above – I say it sure can. The data reflects all of these items and will be analyzed to show what is really going on that we cannot see.
      We will continue to remind people that the idea is to be transparent and allow others to reproduce what is shown in a valuation product. If there are questions about the computer model, the assumptions, etc., then the client will talk with the valuer about such. The client will also see what the strengths and weaknesses are and make their decisions as we see fit. We’ll just lead the horse to the water. Not our job to worry about them drinking the water or not. Just pay us for the analysis we provided and any time involved in explaining it et al. That is the goal. it won’t happen tomorrow.
      A lot of worry about regression analysis….1) It will be transparent….2) It is still only one of the price or valuation techniques. None of this is about an AVM being the SOLE solution.

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        Technical analysis of stocks is based on the price of a stock and the assumption that the price reflects all that there is to know about that stock at any given time, thus rendering fundamental analysis irrelevant. So you expect the “data” reflects all the items which enter into the pricing of a property. The problem is that the data is derived from all other properties and not the subject. That would be similar to doing technical analysis on a number of stocks in order to predict the behavior of a stock which is not part of the analysis. Is anyone on Wall Street using this approach?

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    The contempt displayed in this article is also “Systemic”. I have done this with all of my heart for over 2 decades only to find that I am very good at something that has no validity or value to anyone. This makes me both sad and angry. Field appraisers have had no real input into anything that happens with the way this business is done. I am out of the wretched “profession” as soon as I can find an exit. The past five years have been pure hell, not ONE soul involved in setting policies for our industry has demonstrated to me (or my peers) that they give a Tinker’s Damn about the fact that most of us are holding on by a thread.

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      Many people feel like you re a way out and such. And the real world reality that most of what we put out is of no value to our clients – many clients are forced by law to get an appraisal, not by a desire to get one.
      As the next paper will point out, no the sale price is NOT an indicator of market value. We have been forced since the 1940’s to have a MV definition that mentions price. So, all of us are taught this relationship. As my Mann’s Theory of Valutivity will state in the next paper, a sale price is RARELY an indicator of value. This is a huge change that is needed in how we do things. Hopefully, the next paper will be convincing – albeit many will never change their feeling that value is price. Thankfully, the smart money has been saying for the past 10 years that sale prices are not indicative of value. They make their riches by knowing that and playing off of the other 99% thinking price is value. More to follow.

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    No question that the appraisal business is caught in obsolete formalism and stale tautologies. (Example: what’s the purpose of an adjustment grid? To adjust comparable sales with characteristics different from the subject to a narrower range of values. How do you know when you have the right adjustments? When the range of value is narrow and pleasing!)

    Everyone knows how this is done. You start with the answer, usually the pending purchase price. You select four or five sales close to that value, a few above, a few below, and ignore all the others. Then you make adjustments that (hopefully) seem consistent with economic theory, e.g. an extra parking space should be worth more, and you manipulate the magnitude until the grid looks “right.” As the authors point out, most often there is nothing more objective to the process than that, unless the appraiser did a paired sales analysis for a demo report 10 years ago. No wonder our clients don’t think too much of this process.

    However, the apparent solutions presented don’t seem too promising. I’ve tried doing multiple regression in commercial appraisals. Excel makes it easy to run regressions, but it’s damn hard to do them well. Instead of five sales, you have to review 25 to have a decent data set. You have to distinguish sales that really don’t belong from sales that are merely on the outer edge of the distribution. You have to identify variables, and create them if they aren’t in the data set. For instance, the most fundamental variable is location. How do you quantify it? Distance from downtown or some other landmark, traffic count, WalkScore, nearby purchasing power or income? Is that in your data set or will you have to calculate it manually? Is the relationship linear, or will you have to do a reciprocal or log transform?

    And after you try a number of combinations of variables, transforms, etc., what do you get in the end? The appraisal reviewer and regulator don’t know enough math to pay any attention to it. You may statistically prove that the probable value has a 95% confidence interval of 20% higher or lower, due simply to an inefficient market for unique goods. Oops. And do you know how much extra the appraiser is paid for this? Yes you know.

    Not only is this impossible for individual appraisers to do efficiently – not only are current clients immune to the charm of these techniques – the aging cohort of appraisers is not and will not be capable of providing them. The prereqs for undergrad econometrics at the University of Washington are intermediate microeconomics (calculus-based), a year of calculus, and a quarter of calculus-based statistics. This is far beyond the current or contemplated skill set of the average 40+ year old appraiser, either residential or commercial. Sure, you can take the AI’s regression class, as I have, but it won’t make you an expert. Regression is based on multivariate calculus and linear algebra. The young people who actually have this expertise won’t be going into real estate appraisal – they will be doing business analytics or finance for a lot more money.

    So in the end, you are suggesting analysis techniques for which there is no market demand, which can’t be provided by current appraisers, and which trade the current illusion of precision for the reality of imprecision.

    I think there will be a demand for cheap AVMs, perhaps Collateral Underwriter with a value conclusion, plus a streetside inspection and checklist. Lenders will conclude that this tells them most of what an appraisal would tell them, with offsetting errors in big pools. George has written about other conceptions of market value that might be more useful to clients, something like “long-run” value that tries to smooth out market fluctuations. I would guess this could also be done more cheaply in a computerized fashion. I really think valuation will move to a small number of Big Data providers. The era of the appraisal as a craft product, with thousands of independent providers, is almost over. They will go extinct, like travel agents.

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      Awesome thoughts. You nail everything perfectly. Your last few sentences are right on target. Re the regression and Big Data and such – We think every valuist office would need an actuary or such on staff…maybe just a major expert in regression analysis. The specialization would be so great it would likely be more prudent to hire or contract to an expert than for the valuist to master it themselves. Not to say some may not master it. Excellent thoughts and I am glad you recall my constant pushing of Mortgage Lending Value:)

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        The residential appraisal is in its twilight, as are its practitioners, hanging on simply by inertia and government regulation. Many of your correspondents here don’t seem to realize that if Collateral Underwriter can pick the “best” comps and determine adjustments, it has ALREADY computed a value from its value model. The way forward is clear – FNMA will continue to validate the database of US SFRs from transactions

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          The way forward is clear – FNMA will continue to validate the database of US SFRs from transactions, it will validate its value conclusions as compared to appraisal value conclusions and sale/resale records or other measures (e.g. loss history), and in the end, will raise the de minimus and allow CU or other AVMs for first mortgages. Those who have made a career of appraisal also don’t seem to realize that the appraisal is a huge obstacle to refinancing. Not only are owners reluctant to have someone tramp through their house, they are reluctant to front $500 non-recoverable. If the house doesn’t appraise, that’s like flushing 5 bills. On the other side, lenders recognize that appraisals were unable to prevent the S & L disaster – so we got FIRREA, state licensing, higher and higher education requirements – and in the end, appraisals were unable to prevent the housing crash. It is absolutely true that appraisals wouldn’t be expected, under current practice and theory, to prevent booms and busts. But the lenders say, what then is their point? I would guess the hand-crafted appraisal by a licensed appraiser will be withdrawn as a lending requirement in 5-7 years.

          But George, where I can’t follow you, is your idea that there is some significant demand for “valuists” who will provide sophisticated analysis on a house by house basis. Big Data is all about economies of scale. CoreLogic reports that its AVMs are produced by a team of “50 Phds, economists, modelers, and residential appraisers.” They need programmers and analysts, not SRAs, MAIs, USPAP, licensed appraisers, TAF, and the rest. I would see the residential appraisal business mirroring the credit reporting business. There are 3 providers, plus Fair Isaac. For appraisal, there will be Zillow, CoreLogic, Collateral Underwriter (maybe as a spin-off), maybe a few more. The borrower will come in to the bank or fill out an online form, will pay $50 for an AVM, if OK will pay another $50 for someone to do a drive-by checklist inspection (that a moonlighting agent will complete for $25). I don’t see how a local residential appraiser can add any value at all to this process. Enlighten me here, and then we’ll talk about commercial.

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    Not much to respond to here, but a few items re falsehoods about me might be worth addressing so others can determine my level of competency or incompetency.
    1. I am 50 years old. Not sure if that makes me an old-timer who ruined it all. Regretfully almost 60% of my life has been working as an appraiser. Geez time flies.
    2. I have been lucky enough to have succeeded in this industry and semi-retired before I turned 50 so I could spend the next 15+ years trying to change our industry. Luckily, I have the free time to do such. I have been giving back to the industry for the past 10+ years by teaching and writing articles. I plan to continue to do that for the remainder of my life.
    3. I have never had anything to with any residential AMCs and never hired one when working at a bank. I co-owned a commercial AMC, but appraisers got paid their full fee and I would guess 95%-100% of them would say working with us was awesome. In fact, EVERY new client we got was from fee appraisers referring banks to contact and use us. That says a lot right there.
    4. My personal review experience is about 4000 commercial and residential appraisals all across the country and some international. I have overseen probably 15,000 reviews in total. And yes I was a fee appraiser, also.
    5. The studies noted provide a ton of data and were prepared by very knowledgeable people in the real estate industry. I am sure each has its flaws. In aggregate the consistent conclusions addressing data over a 25-year period, both commercial and residential, all forms of price and value comparisons, et al speaks for itself. Let someone do a study (well 5 or 6 studies at a minimum) showing otherwise.
    6. The second part of the article stating that almost all appraisal reports lack support, lack verified sales, lack supported adjustments, lack, lack, lack, are beyond being questioned. Any user of appraisals can show hundred and thousands of reports with inadequate support. They would have a tough time showing any reports with adequate support.
    7. Lastly, the paper’s main purpose is to get people thinking about how we can move from an industry where the participants are extremely unhappy (just read the comments to this paper!), income is below average and getting worse, clients control the industry, et al to a profession where valuers love their job, make above average income, and clients respect their product and do not try to control the valuers. That is the main goal of this and upcoming papers.
    8. We do not think this will be easy. Overcoming 80 years of being controlled by bankers and lenders will be a huge challenge. How we get there will not be a set path by me or anyone. But, maybe as a growing group of people wanting to move in this direction there is a chance to see a major change occur. Input from everyone is being considered and made part of our thought process.
    Lastly, apologies for some poor grammar. We didn’t take the time to have my English-Major appraiser wife or some other such qualified person clean up what we wrote. We wanted it to be raw. Using our words. Not trying to be perfect. Just trying to speak a common language. I have had more articles about appraisal review and federal regulations published than anyone – I know this working paper was not to those standards. Neither will be the upcoming ones.
    Thanks again to everyone for expressing their opinions. As someone emailed me, we live in a country where such can be done without repercussions.

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      Who is going to pay for these improved appraisals? It seems to me that at least one of your motivations is to increase fees and that is certainly one of the primary topics of appraisal conversations these days. Lenders and their AMCs have pretty much drained the profit out of mortgage appraisal and the banks, like us, don’t have a very good definition of what appraisal quality is, so how are we going to convince them we now have something worth paying more for?
      I’ve heard a lot of invective about appraisers, but I’ve never heard anyone say they’d pay more for a better appraisal.

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        Obviously the challenging question. I’d obviously solve everyone’s problems if I could invent a product that all clients wanted to pay a lot for. Not that easy as we all know. I’ll get into part of the overall thinking albeit this is part of the larger concept and future players. We are thinking you provide the marketplace with everything it wants (not saying fudged values or fraud or illegal activities). Provide an infinite number of products, forms, reports, etc. Like landscapers and builders and other service providers, they provide us clients with anything we want – subject to some legalities every industry has. We don’t need an onerous USPAP (and people that know me, I have always supported USPAP strongly….just not what we need any more). Clients despise us for many reasons – one is the limited products we provide and our hesitation to customize them. If a lender wants Market Price (what we incorrectly call Market Value), then so be it. If they want that from an AVM, multiple regression, a few sales and listings, fine do it the way they want. And charge accordingly. If they want a sophisticated report with multiple regression, DCF analysis, detailed market analysis, fine give it to them and charge by the hour and get paid like an attorney would. These would be rarer assignments obviously. But, the client would request such because of a high risk or major decision or such and the fee being high would not phase them. Our idea is to stop limiting the valuers world. Mowing my lawn gets a low fee that is almost a commodity due to competition. Being a landscape engineer and designing a whole new landscape for my house (which I am about to try to find such a person for the house we bought last year and expect this to cost a lot) should cost a lot. We are not blind to the fact that the entire marketplace has to be changed to want to pay us like other professionals get paid. That will be a 180 degree change. It won’t be easy. But, what we are outlining and proposing is to do something to get the ball rolling to hopefully result in this major major major change. We think it is simply better than doing nothing….always complaining that lenders and such got the industry where it is today….etc. Bluntly put, who cares about that stuff. We can only live in the future and we thus need to find a way to implement change. I would rather fail trying to change everything we do in hopes of getting us to a true profession of valuists than not try at all and simply watch what is happening continue on. Not all ideas that are proposed will stay around. But, presenting and discussing any and all options and ideas is the best way to get us to higher ground. I have no magic wand. And if we do succeed in getting to higher ground, I likely will not be around to benefit from it. But, the industry treated me very well and I am willing to fight to get into a whole new world where we are respected, paid well, and enjoy our career. I will endure a lot of criticism along the way as many ideas that are proposed will hit a nerve or just plain be stupid. Trust me, I listen and get convinced to drop many ideas. I am just willing to be dumb enough to stand up in front of the world and have them throw tomatoes at me:) If we get to be a respected profession down the road, it will all be worth it. Everyone have a great weekend. And keep on opining. That is the most important thing we can do with the freedom we have in our great country.

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          This reads like you want to re-invent the trade of appraising. I think I probably agree with doing that, but I’d also say the least of our problems is USPAP. Oddly manipulated interpretations of USPAP may need scrutiny, but we need the framework and a way to let it grow. And I do not believe any answer will be found in tailoring the development of an appraisal to the meet client’s demands. The foundations of the appraisal have got to be solid regardless of how it is reported.

          Bending over for SFR mortgage lenders brought us form filling as opposed to appraisal substance and tailoring development for unethical clients has made us an untrusted laughing stock. But we have exacerbated our bad image as hired guns by continuing to tolerate incompetent appraising.

          Is any part of this about taking TAF out of the appraisal education business? Frankly to the extent this is about educating appraisers, I think that should be done, whether for QE or CE. exclusively by accredited upper level institutions that issue degrees. What we have been doing as long as I have been appraising results primarily in producing income for the educators and leaves the students with little understanding.

          If quality appraising is the objective let’s focus on that until we figure out what it is. And while we are at it let’s figure out what appraisals are really needed for. Apparently there are diverse opinions about that sine many clients don’t seem to need them or want them, but are required to get them. No small part of this miserable situation is due to that, I’m sure.

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            Yes, the idea is to reinvent the world of valuation. We thought about it, but just think the terms appraisal and appraiser and such are so tainted in America it would be near impossible to change them. Sort of like changing the reputation of an ‘used car salesman.’ Some things are just set in stone. So new terms like valuer, valuator, valuist, whatever would seem a possible way to go.
            I own the copyrights to some words. Simply to protect them. They are free to a good home. Any organization that comes along and runs with a new valuation profession can have them if they want them. I have no desire to make a dime off of any of this. Again, I was lucky enough in this profession to hit the my apex goal by the age of 35 and live the next 15 years making a good living at that high level. Now it is just about giving back. My only expectation out of all of this is it will cost me time, travel money, etc. Only expenses, no income.
            Re education, again totally flexible. It sounds like most appraisers have been disappointed with education over the past 20-30 years. The one group I have heard 100% positive about their education is the CCIMs. I have sent many employees to their courses to get their designation and never heard a single negative. I never took a course from them so I have no personal experience. But, obviously there are ways to make education a positive experience. But, as you have noted, it will be a way advanced level that most of us may not be able to achieve at our stage in life. But, transition is for the future valuators. Some of us just have to cope thru the changing times.
            I will not state any opinion about TAF, AI, et al. Not really relevant to what is trying to be achieved here.
            You nail one point – what do clients WANT from us….Having worked in for consulted for banks for 23+ years now, I can say factually that 75%+ of commercial appraisals are a waste of time. It is funny how much appraisers have picked on FIRREA over the years, yet if it didn’t make banks have to order all of these appraisals they wouldn’t. FIRREA is solely responsible for keeping the commercial appraisal profession going since 1990.
            The same re residential except it is probably 90%+ of those appraisals are not needed – only required by law. Clients, Wall Street, etc realize this and continue to work on ways to stop wasting money on a product they do not want or need – are just required to get by law.
            So, yes we must solve this…and yes this likely will result in a reduction of demand by huge amounts. That is the likely negative side of change. But, the current path will likely lead to the same result….just in a slow, painful death. It is also funny how appraisers complain about there being too many appraisers and now that we are down to 80,000 what is the feeling? How much money could be made if the supply was only 10,000 or so? Just tossing out anything….I don’t have any personal opinions. It is people voicing their thoughts that end up showing where should or are likely to go.
            Good questions Edd…..and great feedback.

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            Thanks for the info re: the names George, but I’d like something more high falutin’ like “Real Property Analyst.”

            As for the clients. I see no indication that the national banks want any information from any of us, so lets not worry too much what they think or ask for. If we are to continue working for lenders then it will be because the government requires them to get an appraisal. Frankly I have decided that I will be selective about the clients I serve and discovered long ago if they don’t want an appraisal and don’t want to pay my fee and let me decide the scope of work and how long it is going to take they can hire someone else, and many do.

            I believe the reduction in force, although I would not wish it on anyone, is absolutely necessary. This pretending that you are running your own business by appraising for mortgages requires an active imagination. I guess

            Although it is handy for communications to speak of things in terms of dollars we have got to get completely away from the definition of market value that includes a probable price point. A range of possible values is the best anybody can do. Our clients need for us to express value in terms of a price point is a clear indication that we cannot meet there requirements and disqualifies them from any input into the process.

            Another thing that we need to get away from is any notion that our opinions can be accurate. They can be supported, but they can never be accurate. Facts on the other hand can be accurate.

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            We like Real Estate Analyst a lot, too. The only problem we found that currently this person is taken to be down the hierarchy from an appraiser. It probably has a chance of being turned around and place above an appraiser where it should be. Real Estate Counselor might be good, also. However it turns out, we don’t see appraisal and appraiser overcoming their bad reputation.
            Good idea re clients. As I have long said in classes I teach – you can fire a client. Many times appraisers call me 6 months later and said that was the best advice they ever got.
            I believe all of us agree re giving a range. And I do think it can even work in the lending world. LTVs and Reserves and such can be set to deal with ranges. As the next paper will outline in great detail, we must move to providing value and away from providing price. For 80+ years, appraisers have simply followed the ups and downs of prices. Why does a market need to hire anyone when prices are public info? Value is a whole different concept that for the most part has not been addressed in America – amazingly in the 1930’s the FHA higher ups did start with value…but then NAR changed the definition of value to mean price and everything has been down hill since then. We simply go back to what the founding fathers of appraising had proposed and we will be set. We just have to retrain the way of thinking of every appraiser and the general public (which included clients)….a simple task;)

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            Anybody in the appraisal business has heard inumerable criticisms about the accuracy of appraisals and the mechanics taught (and followed) by the appraisal industry in perpetuating the old “3 primary approaches to value” mantra. Thank you George for providing some concrete on which to stand and assess the frailties built into the American appraisal industry. This is an awfully long reply-chain, so forgive me in advance for offering the following if it has been said previously.

            Let’s get real about the Sales Comparison Approach. One of the (if not the) biggest drivers for reliance on this approach stems from US courts’ preference for valuation of real property by use of direct sales. The Supreme Court has effectively made it the measure of just compensation even when a property’s highest and best use is related to income production. My point: our appraisal industry is and has been shaped by the users of our products (not so much the actual practitioners who ply the trade daily).

            Let’s also be honest. The vast number of appraisers in this country (including many MAIs) wouldn’t know a regression study or have even daily earned experience in paired sales analysis. Our professional organizations (including AI) have done a piss poor job of providing trainees and experienced appraisers with even rudimentary “real world” examples of making adjustments. As an example, look at AI’s basic “Land Valuation” text, with a subtitle of “Adjustment Procedures and Assignments.” In a nutshell, here’s what the book says in Part II – Adjustment Procedures: 1) avoid sales that differ widely in size; 2) support size adjustments via calculating unit price rate of change or through alternative methods (e.g., land value extraction). Seriously? This is the best our premier appraisal organization can put forward?

            George, you must feel like the early climate scientists who saw cross-cutting data indicating a link between human commercial activity and anthropomorphic global climate change! Yet we still have some neandertalls in the hallowed halls of Congress who don’t want to look at the data either!

            For a group (i’m included) that has chosen to participate in a data driven profession like appraising, I am at a loss to explain the general apologist attitude conveyed by many of your detractors. Making apologies for how we do things and the rightness of continuing to do things the same way even in the face of overwhelming data indicating that our values aren’t very accurate (in gross). The state of our industry is reflected in a teacher’s admonition to an appraisal class I took some years ago. He admonished the attendees to “please, please include at least some tangentially-related defense for your adjustments.” “Something, anything other than ‘based on my experience….!”

            Keep the faith George – some of us out here applaude you bringing a cogent summary of studies showing the accuracy of real property appraisals. The appraisal industry and many of its members are standing by, singing from the old hymnal, and biased against any news that undermines our faith in believing that we’re doing the best we can (while the evidence stacks up indicating that we’re doing just okay).

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            I’ve got a question about “appraisal accuracy.” Accurate as measured against what? Zillow? My bet is that “appraisal accuracy” is a bit like “appraisal quality.” Just buzz words, nothing more, but it sure sounds like we have a factual, tangible goal in mind. Smoke and mirrors!!!

            I have been told that my appraisal conclusions are opinions, and I’ve not once had an accurate opinion although I’ve had the experience a couple of times of convincing people that I’m right..

            Has anyone other than the current crop of politicians had an accurate opinion?

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      Blab, blab, blab, George now has a 6 million dollar whistleblower settlement and will no longer be trying to change the industry.

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        Wrong again. The settlement is why I retired last year and decided to spend the next 10 or 20 years trying the change the industry in hopes that one day clients and practitioners will be both be happy with the product we provide. I now have the time to solely focus on this and a few other big picture items. Without the settlement I would probably never have had the time to work on this stuff. It is time consuming for sure.

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          George you played the system both ways and won so you will get no support from me. You have said that 90% of the time the cheapest appraiser is chosen and that you see no variance in quality. However, as a good appraiser you need multiple sources for your support and I disagree with your conclusion. While operating your AMC for 5 years I’m sure you applied your 90% rule and have thus personally been responsible to help fuel the destruction of this industry. While the regulations made appraisal businesses worthless overnight, I’m sure you made a nice profit when you sold your business. While I’m sure you had no problem with the system while you were the AMC, as soon as you could get the inside paperwork you turn on the appraiser/clients and make a cool 6 million. Please retire George as you don’t represent the day to day residential appraiser.

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    Right on George!!

    Even if I couldn’t understand what you had to say I’d be inclined to believe you because of the anger directed at you in the majority of these responses. No one asked a question about the studies although many find serious flaws with them, The lack of questions indicates you did a good job and 67 comments and still counting indicates some in the audience perceive you as a threat.

    Somehow you have threatened these folks by offering them progress and giving them the reasons they need new methods and approaches. Maybe most like it the way it is. I have a theory that many appraisers believe their opinions are valid, valuable and in demand and therefore need nothing whatsoever to support them.

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      I obviously expected the venom. You don’t expose the ugly inside of a trade and expect many to be happy. Albeit, not like we have come up with anything that clients and the public haven’t already seen – awful reports, lack of support for virtually anything, et al. It’s just time to admit it….sure blame those that caused it outside the industry, that might make you feel better….time to set a course to change everything for the better.
      And yes the paper had the idea of not just all of the studies that conclude the same, but also just show what is wrong in virtually every report. Between the two it is tough to say the product we put out is worth a dime.
      Having been on the client side, I simply want appraisers to know the truth – 75%+ of all commercial appraisals for lenders are not needed…only required by FIRREA. I personally contend no appraisals are needed for house purchase loans – just use sale price as our industry has proven it won’t go far from the price. Let’s all save time and money and do something that is value-added (no pun intended). Regretfully, this does mean a HUGE reduction in demand and therefore the population of appraisers. The hope is the small population of valuers that come out the other side are happy, well-paid, and respected. As many have said on here, if you prefer the status quo then enjoy the slow, miserable, continued decline in your industry. I would rather fight for change. Not all will want to fight with me or in the same direction.

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        As you said, expect most of the trade to fight change for the better…even unto death. Some will fight you if for nothing else to be agin it. It is past time to cut the lenders loose. I know they don’t want us now, probably never did and it was ill advised to appoint us the cops to man the lender watch.
        You go George, I’ll follow and be support if you don’t mind because I haven’t got a clue what will work. I’m a pretty good critic, but not much when it comes to getting something innovative done.

        I think you are pretty much right. You are going to have to start a new ball game. This one has become devoted to “mine’s bigger” and I’m “faster and cheaper” and it isn’t going to change.

        Can we start with us defining what constitutes a good quality appraisal as opposed to defining quality as being something the client is willing to believe? That is just second rate.

        So I’m ready for installment #2. This one has been beat completely to death. Most refuse to understand the implications of all of those studies you cited. I take them to mean that there is no danger in throwing the baby out with the wash water because there is not a baby worth saving.

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          Thanks Edd and I agree totally. That is why we chose to propose a whole new start.
          I thought someone would ask what in the heck the word ‘Bennu’ was at the end of the article and not a single person ever has! But it is the Phoenix and the thought is we would rise from the ashes we are in. Project Reboot has been what I named this….it is time for #2 as you say.
          And yes those who resist change will just be passed by. For some, they are comfortable doing what they do. For some, it is too late to change. We all have reasons.
          Thankfully we have enough people in DC who recognized a total change is needed. People are moving that way. It just takes time to undo the past and replace it with something solid and beneficial. That hasn’t been designed in whole yet. That is what these discussions are for.
          People can think the color of the paint or kitchen cabinets or whatever is important to value. They are in the weeds when the risk takers (clients) are thinking big picture.
          Does anyone think Blackstone and Wells Fargo got a single appraisal report when they bought $26 Billion in real estate from GE last week? I don’t know for sure, but would say no way. Not needed. I am sure they had a due diligence team that obtained the necessary info (which likely did not include current condition of each property – this can be accounted for in the valuation process….any unknown can be accounted for) and worked away to put a value on each property and one on the portfolio. If this team was made of employees, then no fee was charged, but you can add up their time and such and it was probably hundreds of thousands of dollars in cost. If it was outsourced (done quite often for various legal reasons), I would guess a fee in the hundreds of thousands was charged. Valuers got paid big time for this assignment – whether employees or consultants. The client WANTED to know the values to arrive at a good price to offer. No one forced them to get appraisal reports. All of their analysis was done with no worry about USPAP. Regression analysis, market analyses, et al are the key to such transactions as we go forward. They probably used some of this already knowing how advanced these two entities are. All of this is easily done without USPAP….without 3 sales comps – I would hazard to guess without ANY sales comps. Having valued the real estate collateral for 40-50 bank acquisitions or capital raisings, I know for the most part how these portfolios get valued. Yes, each property is valued…..yes in the end an aggregate is used. And everything is real estate only….nothing to do with loans and such – that is another part of the due diligence project. I think this will be the major focus of valuers in the future….complex individual or portfolio transactions. The simpler stuff will go to others who can do it cheaper – whether using regression analysis or something else. At least I am preparing for such and trying to get fellow valuers engaged to mold the new profession. We did that in the 1930’s and then NAR took control in the 1940’s and banks later on. We need to do it ourselves. The number of people joining the project continues to grow. We think it is only logical that people will want to try to go from the current unhappy, disrespected trade to a true profession of happy, well-paid and respected employees/contractors. It seems like a no-brainer. Yet, many simply won’t change and will watch the slow decline continue. Welcome aboard Edd:)

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            I assumed Bennu was Greek for good luck or travel well or some kind of see ya all later. Now I know if it shows up on the test. Anyway, Bennu back to you.
            Although I grew into this profession prior to, during and out of the most recent residential mortgage fiasco, I agree it is time to cut the lenders loose. We are, as you observe, basically meaningless in the process of measuring the value of the collateral or providing relevant information for risk analysis, if indeed either of those are even a part of mortgage lending any longer.
            We will need to argue if you propose we go ahead without standards of some kind. USPAP wasn’t well written and it is being corrupted into meaninglessness. It will be trick if we have to get lawmakers on board for change. They will be consumer oriented, or at least say that they are so we will get AMCs and “customary and reasonable” stuff again and another layer of government, but as I see it if respect is sort of like the public trust and some kind of ethics and predictability is sort of an expectation in that venue.
            I don’t think we need to paste together standards by taking snippets from the organizations again. And please, if education is to be a part of this, and surely it must be, let’s require completion of at least a masters in economics going forward and then CE must include case studies. Get rid of the hypothetically perfect comps, etc. There is plenty of real stuff and after all reality is where appraisers work and usually with access to far less than enough relevant data.

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            Thanks Ed….all agreed and taken for serious consideration as we move forward.
            I have always said banks are the worst clients you can have. They supposedly (I have no proof and won’t argue the point, but it sounds logical to me) account for 50% of all commercial appraisals and 90% of all residential appraisals. If it wasn’t for FIRREA and Dodd-Frank requiring appraisals, banks would make up a much smaller % of our work already. Hopefully, it will head that way anyway. Any client that represents that much of work has the power to dictate pricing. Now, if we can get rid of them, which means them getting rid of us, it will drop the need for valuers considerably. But, at least the remaining valuers would be providing a product for clients that WANT their services.
            This difference of want and need shows up today in the banking world, in fact. When I worked inside banks and they essentially needed to get appraisals and saw the appraisal department as an obstacle, my staff constantly was harassed by lenders to get
            certain value and use certain appraisers. As an outside consultant, the banks that use me WANT me because they need help solving some problems. I NEVER get pressured from lenders to use certain appraisers or hit certain values. The last 7 years with my commercial AMC or now just doing it all myself have been such a pleasure – never any hassles. When someone wants you for your knowledge and expertise, they treat you so much better than when they just need you because some law forces them hire you.
            Getting to a world of just want would change everything. We shall see.
            Thanks again Edd for all the constructive feedback. Let’s hope for a bright future albeit it will take a lot of battling to get there – the sad part might be appraisers themselves put up more of a fight than the outside world!

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            This thread is evidence of the fact that many appraisers will do their best to throw you and your ideas under the bus. That and faster/cheaper have become the primary methods of competition. Nobody seems to be shooting for quality.
            Let’s start this and we can just call ourselves something that is a part of the larger universe of valuers in which appraisers are include. The banks can keep the appraisers and CU and H&BU and USPAP, Valuist is an OK name, but would you add analyst in there somewhere?

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            Agreed and yes will do what I can to have analyst included in the terminology. I am fine with Valuation Analyst….Real Property Valuation Analyst….open to most anything except appraisal, appraiser, and such need to be rid of.

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    After reading this article, it disappoints me greatly to see that the author has so much experience, but chooses to attack a profession without any regard to anyone in this profession. State regulators, appraisal standards board, AMCs and appraisers have done a great job improving the appraisal profession in recent years. It would be foolish of me to critique this article since my principles stem on mentoring, creating, improving and

    I have been a Realtor and a member of Chicago Board of Realtors for 15 years, independent appraiser for over 10+ years, 5 years as a staff QC reviewer at a major international bank (10,000 a month loan volume), obtained a BBA in Finance Loyola University of Chicago, Master level classes in Econometrics/Financial Capital Markets and advance business statistics.

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    Where is your support for this statement and many of the others? Or do you “have no support” other than anecdotal or subjective?

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      I guess I would ask for anyone to provide residential appraisals with supported adjustments – support meaning paired sales data (and much to those who want to say such is impossible, BS! paired sales exist all over the place) – stand up say such. My experience as a user of appraisals and reviewer of appraisals is 100% of the residential reports I have seen contain ZERO support for the $ adjustments shown. Let me correct that….I did see one eminent domain project where the appraiser had a study showing why the size adjustment should be around about 1/3 of the total price/sf – i.e. use $30/sf when sales are in the $90/sf range. That made my day, year, decade. I have never seen a similar study done by anyone. I am sure they exist. But, I am willing to wager a lot that if FNMA gave me a million residential appraisal reports we would have difficulty finding a single one that shows detailed market support for even one adjustment much less all adjustments in the report.
      I personally have not seen everything. I personally have had residential reviewers working for me and I know residential appraisers and reviewers and I have none at all say they have seen detailed support for any adjustments. Based on that, I am willing to say the 99%+ statement is valid. Even if proven wrong, I doubt it can be proven wrong by much.
      If there is a segment of our world where these adjustments are routinely supported, that is great and that is the way it should be. I would be curious to know where that is. I would love to see residential reports with ample adjustment support – it would give me confidence in various adjustments like I have in the size adjustment 1/3 ratio mentioned above. Not to say other detailed studies of ample data haven’t concluded at 40% or some other number based on a particular market. Again, in 29 years I have only seen this done once.

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        Support for adjustments do not need to be IN the report itself. There has never been such a requirement for a summary report. Just because you see zero support doesn’t mean there isn’t any support.

        Your accusations ignore scope of work.

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          I’ll finish up my last replies today as time to move on to the next phase of this project. But, this is news to me after 30 years of appraising and being an USPAP instructor – you MUST ‘summarize’ what you have done in the report. You adjust something $5000 you must summarize the support for that adjustment. Saying it is $5000 is ‘stating’ what you did and is a Restricted Use Report. Scope of Work does not affect this. ‘Summary’ is what is needed for everything in Standard 2 that says such and adjustments fall under this:(viii) summarize the information analyzed, the appraisal methods and techniques employed,
          727 and the reasoning that supports the analyses, opinions, and conclusions; e
          USPAP aside I would love to take a survey of all residential appraisers in the nation and see how many have done a full blown data study to find out how much the size adjustment should be… guess is less than 5%….probably much lower. Also, how many have analyzed ample data to know how a 1-car garage vs 2-car garage is adjusted and if it differs by price range. On and on. Realists know very few appraisers have done the research necessary to support these adjustments. But, people can hope that their peers have.
          Summary means just that and regretfully most appraisers today just state. We hear that argument all of the time – you just ordered a Summary Report. Yep, we did…now summarize your data, analysis, support for adjustments, et al and stop stating this is this or that. Heck, I wrote a manual on the difference between Restricted, Summary, and Self-Contained in 1994 when these came out and sold it nationwide. No one ever questioned a thing in it and many appraisers adapted it for their own use. Just get before a state appraisal board and try to argue the ‘scope of work’ thing when USPAP says ‘summarize’ something. Have fun with that. Been at such cases and the Boards rip apart appraisers for not supporting what they do to the level required by USPAP.

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            George, I understand your point of view, I truly do. However, your position is similar to “free market” policy wonks using Econ 100 basic macro economics courses (econ in a vacuum) as their basis for policy stances when the real world has a thousand additional complications, including a world economy and other countries’ policies that are ignored in the process. They act like running a country is exactly like running a household when they make their arguments.

            In the real world, you are right, adjustment support doesn’t happen as much as it should. This is for a number of reasons, including: 1) the fees and expected turn times are not conducive to the analysis and accuracy you are calling for, 2) the mentor/trainee relationship that is mandated in this field is a recipe for in-breeding and passing on bad habits to the next generation of appraisers (each trainee is at the mercy of their trainee to an extent), and proper , 3) until statistical modeling becomes standard in pre-licensing education, it cannot be expected to be the “norm”, 4) theory and real-life availability of quality data – for an appraiser to find out every detail of every comparable used (when the data comes from agent’s SALES databases) is basically impossible – garbage in, garbage out. And I’m sure other reasons I haven’t thought of right now.

            Sorry, George, your theory is great in the vacuum of a blog, but you have been out of the real world of boots on the ground appraising for so long, you have the luxury of looking down at those doing the real work. I’m not defending shoddy appraisal work, I have seen plenty of reports that make me angry that some appraisers are allowed to continue to have a license. But if you think an AVM is going to replace appraisers and be more accurate, that’s a joke. Every single day that I go through comps for another report, I need to filter through the garbage of listing data that are incorrect when compared to the very comp photos themselves. And those without any photos but the front of the house, what is your AVM model going to do with those, just trust the agent listing data? LOL, good luck with that! Your valuations will be just as much and probably more “garbage” as you proclaim our profession to be producing.

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    The fact is 98% of appraisers base their Scope of Work on what Fannie Mae has rammed down their throats. Those who develop their Scope of Work per USPAP and not the Fannie Mae baseline are well aware of the limitations of the typical residential appraisal. Fannie Mae wants a single point value based on a very limited scope of work and a deeply flawed reporting form. If you really want an accurate value then you had better tour and possibly measure the inside of each comp, and personally speak to at least one person directly involved in the sale. You had also better start considering important items that are left out of the URAR form such as home staging, experience of the agent, etc. Even so, economists refer to real estate as a prime example of an “imperfect market” and you’re still only talking about an estimate, a personal opinion, the “most probable” value. Our job is to reflect the actions of the typical buyer and seller, so to this end we are better off doing a qualitative analysis and reporting a value range, not pretending that home appraisal is an exact science. And this is probably what will end up happening some day, when Fannie Mae is finally unwound after a few more bailouts.

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    When I opened my appraisal company in 1983 in Atlanta… I was told I may not be in business very long because banks wanted to use Brokers… Agents… Mortgage originators… buyers and sellers to value property. Problem… They all have skin in the game with Brokers… Agents and Mortgage originators having their income based on a percentage of sales amount… if it closes. Do you see a problem with valuation with this bunch making the decisions. The appraiser is the only person in the deal without a money motive. We only get paid a small fee if it closes or not.
    By the way… I’m still in business after thirty two years.

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    Great article and I like the way you thought this through as well as seem to have a solution in mind.

    The only issue I see with FNC’s, Platdata and the other studies regarding purchase price and the appraiser is that they don’t look at the risk that was avoided as a result of the lower values. The reality is that the markets aren’t perfect however small adjustments and risk avoidance add’s up to big numbers over the long-run and you could very easily end up with a grossly exaggerated market if the appraisal industry didn’t lower the purchase prices on those 5 – 12% of purchases that were under contract. Over a period of 10 – 20 years you would have a very large segment of the market that was overvalued.

    Even 1 – 3% is a significant as most banks run on razor thin margins and the cost of having to repurchase a loan, allocate money to cover a potential loss or move tier one capital to offset an overvalued property that has now dropped or found to have been overvalued is a major burden that destroys profits.

    The appraising profession’s job is to catch the small percentage of bad deals that would go otherwise unnoticed. The casualness in which some realtors and loan officers take the appraisal industry is because very often it’s the only thing standing in the way from them getting a paycheck. It’s more or less a salesperson approach to the business. At a higher level most mortgage and bank executives want a very conservative appraisal and a very accurate appraisal as they’re the ones writing a check when things go bad.

    I do think their needs to be some changes to the profession as well as some more flexibility in the product offerings however the industry does it’s job when it lowers the exposure of it’s clients, even if it is only on an overall small percentage of loans.

    If appraisers didn’t “Kill deals” the market would become exaggerated even more then it is and with modern lending practices such as 3% down or no money down etc you have a situation where it may be too much to burden and the correction of the market too big to correct.

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    And exactly what is the purpose of a work file-I would agree that all support would be in the work file (and used to be in a self contained report). I will include it in current reports and charge accordingly if the client so requests. However, let me be clear I do not now nor have I for several years perform residential appraisals – only narrative commercial reports.

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    George – I think it’s great that you can denounce an entire profession for it’s old fashioned ways, and then advocate an alternate method of statistics that you can’t even articulate (your comments “leave it to smarter people to explain”?) These studies you cite with conclusions like “85% of the values were at or above the purchase price; in a normal distribution they should be 50%” – show a complete lack of understanding of inferential statistics. The 50/50 normal distribution would only apply in a random pricing mechanism where buyers and sellers were not informed or influenced by market dynamics (ie – the price was set randomly). A purchase price SHOULD influence your value as it’s the best evidence of a meeting of the minds provided you confirm all facets of the buy/sell side (knowledgeable, acting in own best interest, in terms of cash, etc.); so using that argument against the reliability of appraisers is uninformed. The value opinion is NOT random – and therefore should never approach 50% higher and lower than an arms-length agreement on price.
    I think you’ve been smoking the banker weed for too long Willie Mann. An appraisal is an estimate of value. Some are good estimates; some are bad. In a strong market – values will be biased low against price (because buyers “bid-up price”) – and in a weak market, values will be biased “high” (because data is prior-market; and there is not “evidence” for how thin the market is or will be). What you don’t address is that when appraisers FUNCTIONED properly in the banking world is when bankers relied on appraisers; but used sensible underwriting with 25%-30% equity requirements. Increased default risk and the recent banking failure was a public finance/policy problem – NOT an appraisal problem. Appraisers have no effective lobby – so the bankers can point fingers and say “Oh – we relied upon appraisals (including our internal review appraisers who are never accountable) – but frankly – anyone who knows how the game is rigged knows better. Using Germany with 0% defaults is also uninformed because they use “Mortgage Lending Value” which undervalues properties by about 15% to begin with; and then they use 60% leverage – so effectively – their bank exposure is only 50% of true value.
    For Braun and the statistics geeks who will try and convince the world that appraiser methods have outlived their day – and statistics will solve the appraisal accuracy problem – I wish you the best. I’ll sit in front of any jury, judge, or the almighty “public” and explain that using statistics to value property is just a probability game- it’s not accuracy; it’s relative probability. A 95% confidence level does not mean that the answer is 95% accurate. It means that the answer is 1 standard deviation from the statistical MEAN.
    This method you advocate (versus 5-6 sales which someone has inspected and deemed comparable) and its variants are in use DAILY against the most heavily traded property class (residential) on Trulia and other sites. I’ll bet you and Braun $1,000 I can show statistical bias and inaccuracy at 25%-30% levels in most submarkets throughout Miami today. Even the dumbest appraisers aren’t that inaccurate.
    Appraisers measure and report market behavior. Until machines start buying property; machines and math won’t be able to value property.

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    George Mann has valid Points. The appraisal process is not broken or the lending risk management process is broken. All of these studies demonstrate flaws in the current risk management process, FNMA CU is the most recent example. The current process is driven by inefficient lending risk management.. Appraisals are not part of the risk management process they are stocking stuffers to make loan files have the illusion of managed risk. Who cares what the property value is, what we really want to know is what is the error rate in the valuation and how does that compare to normalized market error rates. If we underwrite error rate we manage risk, if we understand error rate we can estimate loss severity. If we can estimate loss severity we can set reserves and hedge the risk with an insurance policy, some other risk management hedge or just don’t advance the credit. It’s a systemic problem that is so deeply embedded in how lending risk management work’s it’s almost impossible to fix, just like trying to make the IRS Tax Code more fair. It require such an enormous overhaul of the Banking Environment, they just have way too much invested in legacy to change. I am in complete agreement with George Mann having a similar background as his supplemented with 15 years of street level work and 20 years at the Bank Loan Acquisition Level. It’s not an appraisal problem its a Banking Risk Management Problem. The only way it changes is if the Chief Appraisers at all the Banks get on the George Mann bandwagon. The Big Data Concepts and Applicable Tools mentioned make all this possible, again retooling the industry is an enormous task. I am working with a local College to develop an Undergraduate and Graduate Degree program in Business Intelligence specifically targeting the Financial Services Industry, hard to believe but their Board of Directors comprised of Bankers agrees the process needs to change; specifically since lenders now have Life of Loan repurchase and Default risk as a result of Dodd-Frank. Times are changing get on the Bus, if nothing else it will be an interesting ride.

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    I love this, all of these articles or “Studies” use either averaging or regression analysis to prove that appraisers are wrong. I am a statistics whiz and I know when I see crap analysis and conclusions and these articles are clearly just plain unsupportable.

    How can you prove that these studies are correct? Hmmm, basically use another regression analysis that uses 1000 sales from a 5 mile radius that goes back 5 years? Oh yeah, that will be accurate. Just like sticking 2 robots in a room and have them tell each other that they have “Artificial Intelligence”.

    I also love your conclusion . . .

    “An upcoming paper will detail our vision for the new profession of
    Valuists©. ”

    Wow another salesman with agenda trying to push his valuation agenda.

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    Why computers will always fail at comparable analysis . . .

    Computers have NO WAY to determine the three best comparable available. That is the foundation of determining the value. Computers already start with a faulty foundation, so to make up for it they just use ALL sales, and maybe remove the top or bottom 10% (Because they have no way of determining which are good or bad comps) Then they hope that by using regression analysis (Basically a complicated way of averaging) they will somehow get close to the right value.

    Did you know that computers have no way to even generate thought? They cannot make individual decisions.

    If provided with a choice of

    1) Older sale in the subject neighborhood
    2) Recent sale in a distant neighborhood
    3) Proximate sale but much smaller/larger
    4) Similar size sale in a distant neighborhood
    5) Similar size but dated sale.
    6) Pool sale
    7) Inferior condition
    8) Flip sale

    What order would you use?

    If you can answer that question, you are not an accurate evaluator or appraiser.
    The computer makes this determination before it is even given the property address.

    The computer has to ALWAYS use the same order. It has no idea how to change the priority.

    An appraiser would have to inspect the home, analyze the comparables and then make a decision as to what comparables are the best. Maybe even use the order of 2, 1, 3 then 6 (pool sale.)
    What banks want to know is “What would the typical buyer pay for this home”

    If you want to know what a computer would pay for your home, then you seem to have the answer!

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    With his huge settlement check (6 million) George can now flush away this profession he obviously hates and retire.

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