Change is in the air and is coming from all stakeholder sectors. Regulators are holding banks to higher standards, and as a result, banks are holding appraisers to more stringent requirements. Technology providers are seeing the opportunity to provide much-needed innovation in a manner that facilitates productivity and the accuracy of data analytics. Appraisers who are aware of and recognize these trends will attain a competitive advantage in the market and will prosper.
How the future plays out is highly dependent on how the industry’s current participants face the future, and how they adapt to changing market conditions. The appraisal profession remains woefully underserved where technology is concerned. It is clear that residential valuation has long been imprisoned by the primitive form-centric technology that defines its primary output. While other sectors of the economy move resolutely into the future, real estate valuation has remained shackled by an environment dictated by the GSE’s and others in a position to make the rules and define the boundaries.
As an example, technology for appraisers tends to be driven by desktop applications at a time when desktops and laptops have seen a dramatic decline in the last 24 months. Mobile technology is the clear direction for the future. The appraisal industry clings to the precept that the appraisal process is tied to the form. The profession must acknowledge that solutions tied to the residential appraisal form are ultimately doomed to failure.
There are a number of trends that are impacting all sectors of our society. These same trends are mirrored in the valuation profession in that they ultimately lead to a better understanding of the forces that impact valuation.
The amount of data in our world has been exploding, and analyzing large data sets, so called “big data”, will become a key basis of competition. The increasing volume and detail of information captured by enterprises, the analytics to understand them, augmented reality, social media, and machine learning are key terms and trends that will fundamentally change the world that valuation professionals inhabit.
With the imposition of the Uniform Appraisal Dataset (UAD) by Fannie Mae and Freddie Mac, the very concept of “big data” and its collection came to the forefront. Both GSE’s have enhanced their ability to analyze what some believe will grow to a database of more than 100 million properties within a decade. With such a database and with the requisite analytics applied to this data, will appraisers be at a disadvantage when clients have a greater sense and understanding of market data than those who provide the analysis?
If the promise of “big data” is to be fulfilled, it needs the means to store, process and analyze data. Cloud computing is the answer.
In the simplest terms, cloud computing means storing and accessing data and programs over the Internet instead of individual local hard drives. The importance of cloud computing is that it provides the ability not just for storage, but for leveraging virtual servers that can be linked to efficiently process and analyze data. With the profusion of available data, appraisers and the analytic tools they utilize must harness the analytic environment possible in the cloud.
With the profusion of data that has now been exposed to valuation professionals, new tools must be developed. Spreadsheets are not the answer. What is required is a turnkey set of analytic tools that augment an appraiser’s market knowledge.
Techniques, such as regression analysis, have been available for more than 100 years but it’s only been within the last decade that their use has been embraced by many in the appraisal community. While an effective tool, there are others, such as geographically weighted regression, non-linear modeling and Monte Carlo analysis that hold great promise in looking even deeper into data as a means of gaining insight into markets.
The message for mobile technology is: good-bye desktop and laptop; hello tablet. Computing technology continues its movement to lighter, easier and mobile. Until recently, mobile devices had less robust analytics capabilities, but this is changing rapidly, and the empowering influence of cloud computing will continue to make mobile devices the obvious technology choice.
What Should The Industry Do?
Instead of throwing away the experience and know-how of traditional valuation experts, would it not make more sense to combine and integrate traditional experience with a more rigorous statistical analysis? Studies have shown that traditional experts make better decisions when they are provided with the results of statistical prediction.
The future belongs to those who are comfortable with both their experiential knowledge and the results of advanced analytics. This is a new way to “be smart” and establish professional acumen that will eclipse the typical player. Valuation professionals must continue to be the experts, essentially maintaining their position as the smartest person in the real estate valuation room.
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This article was originally published in the Second Edition Spring 2016 Appraisal Buzz Magazine. If you would like to read additional articles from the Second Edition, Spring 2016 of the Appraisal Buzz Magazine, click here for our digital version.