This is Diana with ABC-The Appraiser’s Business Companion. Were you aware that no two grains of sand are alike? If no two grains of sand are alike then it stands to reason no two properties can be exactly alike. Like snowflakes, each grain of sand and each parcel of land will be different. Accepting this truism, does that mean that all things cannot be equal? What’s my point?
Reconciliation of the analyses, reconciliation of the approach to value developed, reconciliation of the approaches used to conclude the final value. All things are not equal. In the development of a market value opinion, we research and analyze similar properties in similar locations for a conclusion of “probable” value. In the appraisal process the path we take is a sequential step process but there are a lot of “Could Be’s” along the way. There is no formula to conclude exactly our analyses results. There can be differences of opinion between appraisers on the same property because the critical reasoning process is conducted by us, the human analyst of real property value. Even though there is an appraisal process, we the appraiser are analysts that are also unique, we’re not all equal.
A recognition of this reality (that not all things are equal) places us the appraiser, in arenas where our communication skills are tested, and our conclusions are under great scrutiny from those who are also, not equal.
I was asked this question; “Do you believe our appraisal opinions are subjective”? My response, “Yes”. Because not all things can be equal, there is a high probability that no two opinions will be equal. We may all be traveling to Lafayette, but we come here from different locations, with different decisions on how we should travel and what we will do when we get here. In the world of appraisal, within the appraisal process, you the appraiser, who has knowledge and expertise in your area, will develop and work your Scope of Work to solve the problem given to you. You will be charged with making the decisions about boundaries of like properties. Comparable transactions will be determined, adjustments will be decided after a myriad of trial and error, recognized techniques and methods are exercised. There will be no one conclusion even within the one appraiser’s analyses. It is that opinion that upon development then has to be communicated.
How many times do we hear, “never average”. Our document of best practice, the Uniform Standards of Professional Appraisal Practice (USPAP), doesn’t talk about averaging or weighting but it does speak loudly about what it means to be credible (worthy of belief), and reliable (able to be trusted, consistently good, well founded). When an appraisal review is being conducted, is the reviewing appraiser able to overcome their expectations that all appraisal reports must be like the reviewing appraiser? Isn’t USPAP, a document that has some flexibility? Are we expecting all things, all development, communication of our appraisal opinions to be equal to us?
Many appraisers get angry when their reports are returned because someone not like us has a preference that is not our preference and they are not appraisers. They are not “equal” to us. There are Secondary Market guidelines that speak to the preferences of the lender, there are laws that speak to the legal expectations of our government, local, state and federal. Agreeing with them isn’t our job. Working within those boundaries in order to provide a service is our job.
Think about this conventional guideline, “B4-1.3-11, Valuation Analysis and Reconciliation (04/15/2014)
In the Reconciliation section of the appraisal report form, the appraiser considers the reliability and applicability of each of the approaches to value that was utilized in the appraisal report. After consideration of each of the approaches to value, the appraiser will provide his or her final value opinion.
In the Reconciliation section, appraisers must
- reconcile the reasonableness and reliability of each applicable approach to value,
reconcile the reasonableness and validity of the indicated values,
- reconcile the reasonableness of available data, and
- select and report the approach or approaches that were given the most weight.
The reconciliation is based on the appraiser’s judgment of the results developed as part of the valuation process and must never be an averaging technique with the exception of the use of a weighted average technique that includes proper explanation.
The final reconciled indicated value must be within the range of the values indicated by the Approaches used in the appraisal report form.”
If no two grains of sand are alike, isn’t it possible that few conclusions in an appraisal should be drawn counting all things equal? Are we helping our clients, who are not like us, understand how we came to our conclusions and considered the differences? Do we speak to their listening?
This is Diana Jacob, and you’ve just had a “Tip of the Week” from “ABC-The Appraiser’s Business Companion”.