Appraiser Training – The Right Way

Tim Andersen, a personal friend and highly qualified and long-experienced appraiser, and I spoke on the proper training of appraisers.  Tim’s conclusion was that appraisers’ training was lacking, was incomplete. While appraisers’ basic training consisted of learning what to put in the many boxes and spaces on the 1004 form, that training did not include any emphasis on either critical thinking or systemic thinking.

Critical thinking is thinking we do on our own.  We do not depend on others to tell us what we believe or why be believe it.  It means we have asked the necessary questions, and then done the necessary and relevant research, and engaged in the necessary and relevant analyses to reach our own conclusions.  In other words, our opinion(s) is our own. We are not dependent on another to tell us what our opinion is.

Systemic thinking is understanding a system or process so completely that we understand that when we make a decision about variable-A, that decision impacts variable-H, as well as variables-J, -K, -L, -M, and -X.  In other words, we understand that a house 400 square feet larger than the subject will likely require a different size adjustment that would a house of only 200 square feet difference. The reason is that this change in size is not linear, but curvilinear.

We understand that installing an in-ground pool at a cost of $25,000 will probably contribute far less than that to the overall market value of the property.  We understand that the cost approach does not set the upper limit of value since a house (and lot) that would cost $100,000 to build, but would sell in the current market for only $80,000 is an indication of the presence of functional and/or external obsolescence.

We understand that blindly copying data from the MLS into a report, without proper verification of those data, without critically examining those data to determine that they are both true and correct (see SR2-3), is a major ethics violation.

Then, Tim and I considered the concept of delegation.  That is, training someone to  do something for you so you can use your time to be even more productive.  As but one example, this would be hiring someone (and paying them a relatively low wage, say $15 an hour), to free you to do your work for which you can charge, say, $75 an hour.  Some appraisers are violently opposed to this concept under the theory that “…if you want it done right, do it yourself!”, or that, somehow, it is a USPAP violation to delegate this function.  That’s OK. If you are not comfortable with such delegation, then don’t do it. That is a business decision.

Now, how about the quality of clients?  Do we have to take on all the assignments (thus all clients) that cross our path?  Tim and I both agree the answer to this question is a resounding “NO!”. There are great clients, there are OK clients, and then there are major-pain-in-the-butt clients.  Insofar as possible, we need to avoid the last, while we concentrate our business and marketing efforts on the first two. Why? Simple. They are far easier to deal with and life’s too short to go looking specifically for lousy clients.

In addition, at the end of every (fiscal) year, we need to look at our clients and fire the worst five percent of them.  Why? Simple. If they gave us five jobs last year, and were a major-pain-in-the-butt on each one of them, they are not worthy of our attention, so dump them.  Is it tough to find great clients? Yes! So it might be necessary to take on some lousy ones while searching for the great ones. Nevertheless, once you have the great ones, dump the lousy ones!

From the topic of delegation, we transitioned to the topic of technology and how appraisers are embracing it (or not embracing it as the case may be).  Tim concludes that, specifically, appraisers get no training in the analysis of large amounts of data. Given the amount of data there is available to appraisers today, appraisers need to take advantage of AVMs, regression analysis, and so forth, to analyze these data and then interpret market trends as fluently as possible to clients and intended users.  Failure to take advantage of these tools limits our professional growth and opens doors to those who do not have our qualifications, but who have embraced these technologies, to replace us.

Today, there are vast quantities of data available to appraisers.  This includes the local MLS, local public records, public and private data services, Realtor® dot com, as well as others too numerous to mention.  Fannie Mae has essentially all of the residential properties in the US in their database, as either sales or comparable sales. Now, while we cannot access Fannie Mae’s database, we can access many of the others.  Given our access to what we call Big Data, we must be able to analyze a great deal of data quickly. SR1-4 tells us that we must “…collect, verify, and analyze all information necessary for credible assignments results”.  We can’t do this if we are still putting three comps on a form. And to certify we followed USPAP, but did not collect, verify, and then analyze all of the available data to form a value conclusion, that is an ethics violation.  As a result, appraisers need to embrace Big Data, as well as all of the analytical tools necessary to do so.  If we don’t, we will find ourselves as useless as buggy whip makers.

So, where do we need to be?  Tim’s conclusion is that appraisers see the need for more education to keep up with the rapid changes the real estate appraisal business currently features.  That is just simple due diligence, a topic on which we spend too little time. So when appraisers base their value opinions on solid, well-researched data and a proper reconciliation, their value opinions are usually solid.  If not, then they are not solid.

However, as Tim noted, there can be problems with regression analysis and other appraisal tools if the appraiser does not know how to use them.  One of the biggest is uncritically accepting what the computer spits out as unadorned truth. This is simply not the case. Yet if the appraiser does not know how to read a p-value or a z-score, that appraiser is headed for trouble.  We don’t have to master the math on these statistical concepts. Rather, we just have to know what they mean, as well as how and when to apply them properly. We can’t be solely reliant on the computer. We have to know what it is we input, as well as what the output means.

So, education is the key to the future of residential appraisal, as is embracing technology as it is opening up to us.The days of three comps on are grid are dead. The ability to interpret a great deal of data quickly is where we are headed, so we have to be ready for that shift.

For more information on this subject, please download and listen to The Appraiser Coach Podcast Episode: 187 Proper Training of Appraisers

 

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