Whenever something new comes along there are a certain number of detractors. It happened when the automobile was introduced, it happened when computers began to show up in homes around the world, and it happens whenever something different is introduced to the appraisal industry.
In the early 2000s, we were presented with Automated Valuation Modules (AVMs). The cry of ‘foul’ went up collectively from the appraisal industry. “Computers are replacing the appraiser!” they shouted. Frankly, their complaints were justified in this case. AVMs were premature and the technology was not sufficient to do the job they were tasked to do. It was like taking a Model T to a monster truck rally. They just were not built for the mission at hand. Consequently, AVMs mostly died out… thankfully.
Recently, we have been introduced to a slew of new appraisal tools to assist appraisers with valuations. Though regression analysis has always been a part of appraising, there are new technologies which allow this type of research and examination to happen at a faster and more effective rate. From stage left, enter the detractors. I spend a fair amount of time on the internet forums dedicated to the appraisal industry and I am hearing a lot of screaming about these new products. Once again, appraisers are feeling threatened and feel like their profession is being demised. I believe they are using an old model on a new problem and their fears are unfounded.
Though regression tools (and the like) may remind us of the old AVMs, they are not the same animal and deserve different scrutiny. Regression analysis is not a replacement for appraisals. Rather, it is a tool to assist with better appraisals. Where AMVs sought to replace the appraiser by shortcutting the human aspect of valuation, regression is designed to be used by human beings (appraisers) to develop better, more statistically sound appraisals. Certainly, it depends on the market and the data available, but statistical analysis on a mass scale can shed a new light on the market and the specifics of your subject.
Lenders and users of appraisal services would be foolish to ever try to cut the appraiser out of the valuation process. As we all know, the fourth approach to value (sitting on the curb and saying, “What the hell would I pay for this dump?”) is sometimes the best approach. Computers have no instinct and sometimes instinct is needed to come to an accurate value of a property’s true worth.
On the other hand, it is just as foolish for appraisers to disregard these amazing tools to assist our valuation process. Statistical regression can open windows of knowledge we could not have otherwise. In a way, it is a fifth approach to value that can be priceless to the final determination of an accurate and well-supported appraisal.
Now, go create some value!