PROPERTY VALUE
sites sell for more, view sites sell for more, and large
sites with view sell for more than the additive of site
and view. The relationship often is multiplicative
because large lots with good views are especially
scarce. Worse yet, some variables, in and of
themselves have little or no predictive power, but
they act on other variables in positive or
negative ways.
Outliers should be eliminated right away
This one may be at the core of why the traditional
vintage judgment-based appraisal is becoming
obsolete. Appraisers have been trained to seek a
handful of comps that are “similar, competitive, and
����������������������������������������������������������������������������������������������������������
a comparable?
Pick six or seven sales, go look at them, discard all
but the best three. Make sure you bracket overall,
and bracket the key variables, like square feet, site
area, income. Now, make it look good.
So, what’s the problem? The problem is the worst
mistakes made by appraisers are not because of
adjustments being wrong. Big mistakes where
appraisers get sued are because of a missed feature.
A feature that only shows up in something that looks
like an outlier, but happens to have something in
common with the subject.
In Evidence Based Valuation EBV©, we focus on how
��������������������������������������������������������������������������������������������������������
��������������������������������������������������������������������������������������������������������
some way. Focusing on outliers substantially
prevents large mistakes.
58 | APPRAISAL BUZZ FALL 2019
Discarded data of any type (a core fallacy/problem in
the old 1004mc form) causes analytical bias. The use
of just three or four comps, instead of all the relevant
market data, will always bias a result. The only
question is “how much?” When you have all the
competitive market data, it is easier to use all the
data. Thus eliminating data bias up front.
As per USPAP, an appraiser “must collect, verify,
and analyze all information necessary for credible
assignment results.” And for the sales comparison
approach: “must analyze such comparable sales data
as are available.” Nowhere in our standards
������������������������������������������������������������������������������������������
number. Nowhere.
TO SUM UP
The future is approaching fast. It is likely there will be
fewer traditional, opinion-based appraisers. But there
����������������������������������������������������������������������������������������������������������
with big data challenges and opportunities. The
answer is in data science competency – the ability
to understand and exploit computer power, not get
beat down by it. The answer is in learning how to use
algorithms to optimize your market and valuation
competency. Appraisers will still be needed, but in a
smarter way. You will be of greater value, not less.
Can you lie with statistics? Yes. Can you lie with
graphs? Yes. Can you lie with words? Yes. Please tell
me: what do each of these have in common?
Perhaps a statistical BS Detector is a possibility, but
that is for another day.
GEORGE DELL
George consults and trains in modern data science methods for valuation and asset collateral risk. The
EBV (Evidence Based Valuation)© theory and protocol brings reproducibility to value, reliability
authentication, and enables measurable risk/reliability scoring of valuations. The georgedell.com weekly
blog raises often-controversial issues. The related valuemetrics.info website provides information on
upcoming classes. He also publishes TAAR (The Asset Analyst Report), and the CIAR (Collateral Investor
Assay Report).
/georgedell.com
