This is Diana with ABC-The Appraiser’s Business Companion. In this world of scrutiny where mortgage lending appraisal assignments have become a “fear based” position for performing our valuation services, we often feel we’re being replaced. Who decides that we’re being replaced? That question, has become of recent, a strong inner voice that has been reaching out. Sometimes the most important questions we want answers don’t get answered quickly. This, I have come to realize, was one of those questions.
In this changing world where there seems to be no accountability for the licensed real estate agents who encourage buyers and sellers to turn appraisers in to the State Licensing Appraisal Boards it calls for another question. Do you have such resentment for a deal gone wrong that you feel driven to destroy an appraiser’s career? To lenders and AMCs who push, and push and then push again, you have to wonder, do they know the definition of an appraiser?
I had a call this morning from another software developer who was letting me know they are about to launch another multi-use program that goes beyond adjustments, graphics, they are going to offer an even broader host of services. One of the developers said to me, “this is 3 years ahead of its time”. Odd isn’t it, that the number “3” would be the forecast of how long it would take for others to catch up.
Most of the appraisers I know are still trying to learn the basics about statistics, they struggle to understand regression analysis, the charts look good but what confidence can we have in those data analysis systems? Sometimes appraisers feel like for the first-time they understand the dilemma and concerns of all those people who flourished in the “buggy-whip” industry.
Over this past year I’ve seen impressive analyses programs. I’ve thought a great deal about Advisory Opinion 37 “Computer Assisted Valuation Tools” (read it, all of it, its information you need to know). I particularly like the statement on lines 88-81, “The appraiser does not need to know, or be able to explain, the tool’s algorithm, or the intricacies of its statistical or mathematical formulae. However, the appraiser should be able to describe the overall process and verify that the computer assisted valuation tool is consistent in producing results that accurately reflect prevailing market behavior for the property that is being analyzed.”
I don’t know if you remember or not, but a while back I said, there is a need for embracing “big data”, its here and we can’t ignore it. Now more than ever I believe that statement to be true. The art and science of appraisal has had over the past 5 years a growing expectation of the science. FHA recently announced their “risk assessment” program which is going to basically run the appraisal reports through their own statistical model and conclude whether or not a second appraisal is going to be in order. “The Federal Housing Administration has announced that it will begin requiring lenders originating new Home Equity Conversion Mortgages (HECMs) to provide a second property appraisal amid continuing volatility in the program…. The new policy prohibits lenders from approving or closing a HECM before the FHA has performed the collateral risk assessment. Where a second appraisal is required, lenders must use the lower value of the two appraisals.
The requirement takes effect for case numbers assigned on or after Oct. 1 through Sept. 30, 2019. The FHA said it will periodically review the guidance and, based on the results, may renew the requirements beyond fiscal year 2019.”
With each new announcement of oversight, you can hear the knuckles pop on the appraiser’s hands with “how much more scrutiny do I have to go through?”. I remember when the appraiser’s argument used to be, “I wish the lender would read my appraisal report. All they look at is the number on the first page.” Can we all pause for just a moment and say, “thank you, for listening to my plea. Goodness knows, they are reading our appraisal reports now and on many levels; and, we spend a great deal of time answering questions that were raised as a result of reading our Appraisal Reports.
I was watching a commercial this morning, when I saw a robot come into a classroom and direct a science project that went bad. The punch line, “Be Irreplaceable, be a teacher”. A light bulb went off. That’s it, this is just as applicable to the appraisal profession as it is to the teaching profession. What would make an appraiser “irreplaceable”? Is the appraiser competitive? I don’t mean in the price of the service, but in the service itself. George Dell is a well written, seasoned appraiser/author/instructor who coined a phrase, “Evidence Based Appraisal”. A quantitative analysis produces results which formulates evidence. I don’t personally believe that appraisal is “all science”, I personally believe it’s a combination of both “art” (the interpretive ability to reason through a problem when facts, i.e. quantity of data, are insufficient) and science (that which is evidence based).
As appraisers we are frustrated that such a lack of trust in our opinion has risen to the extent that our work product is run through software programs, much like our mother’s and grandmother’s laundry did in the old “ringer” washing machines. I remember how it used to stretch out our clothes and form almost unrecognizable shapes and then the shape was unwrapped and shook until it resembled the towel, shirt and T-Shirts. That’s how we feel today as appraisers, as if we’ve just come through the ringer. How do we stop that feeling? How do we conduct our business today in this type of environment? By being irreplaceable. By learning more about things we don’t know, i.e. data analysis, “big data” analysis. We want trust but we ourselves aren’t trusting by nature. The reason we don’t trust “big data” is because we don’t get how it can process so quickly. We don’t know how it works.
How many of you learned to type on a manual typewriter? Do you remember how much faster it was to type than to write? We mastered the keyboard and off we went. Why did we embrace the machine? Because we understood the letters we were typing and the words we were writing. Do you remember your first computer? How odd it was that it could remember as we turned it off, things we were working on that we had saved. We didn’t know how it worked but we knew what we’d typed and so we trusted in the machine. We don’t trust statistical analyses because we don’t understand it. That’s where you need to begin, learning what your software can do, learning the process the program goes through as it processes our data that we directed to be entered. You can recognize when there’s bad results when you know the market, when you know the processing of the data software you’re using and how it comes to that conclusion. I promise you any of the software companies would gladly go through their process. They may not teach you data entry or model building or programming, but you don’t need that tool, you need only to know what they are doing so that you can run your own checks and balances to see if there is credibility in the output. When you can trust the output, you can trust your ability to offer an opinion that even under the scrutiny of a software, can stand up to the tests.
When you have confidence in your work, when you have evidence that supports what you say, you become irreplaceable and that is how you fight as an appraiser being taken over by “big data”. Invest the time and money to learn more, to integrate the tools to becoming a part of your appraisal development process. In the end, you make the decisions and you will write persuasively why your Appraisal Report can be relied on. Become irreplaceable, be what we know we can be, the human analyst who through their experience and with the assistance of data analyses programs, can produce appraisal opinions of irrefutable measure. You touched it, you went inside, you saw it, you smelled it, you were a first hand witness to the property and the comparable transactions.
This is Diana Jacob and you’ve just had a tip from “ABC-The Appraiser’s Business Companion”.