Appraisal 101 teaches us that appraising is part art, part science. In some cases during the boom years, appraisers might have gotten just a little too artistic. That explains, in part, why we have tremendous scrutiny today on our appraisals.
In my heart of hearts I know we need to bring more science into our business practice. Other industries are leading the way- Amazon, FaceBook and Google are masters of the universe when it comes to big data and analytics. I personally know the lead actuary at Dunn Humby. They analyze consumer behavior at the grocery store. They know more about what kind of peanut butter you prefer and where to position it on the grocery shelves than anyone knows about the universe of real estate.
If you take pause and ponder that, it all is a bit frightening. Residential real estate is the largest asset class in the world yet we know so little about it. That is a paradox that is astounding especially in light of the recent crisis and the risk to the global economy.
We have lost our way. There are three approaches to value. We have systematically devolved into a single approach to value, the Sales Price Approach. We have dumbed it down, way down. I have heard all of the excuses… “appraisers didn’t do the Cost Approach correctly so we got rid of it” or “there isn’t enough rental data so we don’t need to do the Income Approach”. Nonsense. There is value to developing all three approaches. If you had access to reliable data the exercise would be fruitful.
We have an expanded scope of work and insane assignment conditions. Fees are getting thinner; appraisal reports are getting fatter. But appraisal reports are not getting any better. That is not sustainable.
So what is the solution? I do not think it is possible to take the current appraisal forms and leap frog into a world of data and analytics. I know there are many who would argue with me but I do see the future for real estate appraisers as being bright; but if and only if we make some structural changes to our profession.
Let’s reengineer the appraisal process. Let’s find a path where art meets science. The hard side of business, the data and analytics, needs to marry with the softer side- the art side of real estate or the subjective elements. A machine will never be able to report on the condition of a property or the orientation on the lot or the marketability and appeal.
Let’s seek a holistic solution that satisfies all stakeholders so that we may gain confidence once again in homeownership.
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