Most of us learned this crazy business by filling out a form.For me, it was actually preparing forms on the good old typewriter, and since clients didn’t accept White-out, if you made one mistake, you retyped the whole thing …. in my case, normally after almost completing the entire report. My education truly began when I started actually thinking, securing meaningful education and not merely form-filling thanks somewhat to George K. Cox, MAI, SRA.
It’s time for all of us to step back, re-evaluate and employ a little common sense. Most preprinted forms utilize a Quantitative Appraisal Method while a Qualitative Method is more is line with how buyers really act.
Paired Data Analysis: A quantitative technique is normally used to identify and measure adjustments to the sale prices or rents of comparable properties. To apply this technique, sales or rental data on nearly identical properties are analyzed to isolate a single characteristic’s effect on value or rent.
Where do you get these so called adjustments? I know, I know. Paired sales, right? Let me see them. Better yet, the next time you are in the hot seat be prepared to show your paired sales analysis to the court or your state regulatory board. I do believe it is possible to have a proper paired sales analysis and with regression analysis becoming more and more popular there is oftentimes support for your adjustments. However, I would bet that most appraisers do not have this data in their offices to support their adjustments.
Think about it! How many home buyers have you ever seen pull out a legal pad or a 1004 form and make line item adjustments for every little difference. Wait! A bathroom is worth $2,000, a garage $5,000, a deck is $2,000, etc. By the way, why don’t these numbers ever change? Buyers don’t act this way. Has anyone ever seen a buyer operate in this manner? Then why do we? Don’t buyers really analyze differences in the aggregate and make a decision in a lump sum?
At the 3rd annual Association of Texas Appraisers (ATA) conference in Austin, I asked a group of 72 appraisers how many of them had ever seen buyers act this way. The answer was none!
I have interviewed numerous appraisers/brokers nationwide, representing hundreds of years of experience in selling real estate and not one has seen a buyer act this way! If we are charged with analyzing the market, and market participants don’t act that way, why do we?
Relative Comparison Analysis: A qualitative technique for analyzing comparable sales; used to determine whether the characteristics of a comparable property are inferior, superior, or equal to those of the subject property. Relative comparison analysis is similar to paired data analysis, but quantitative adjustments are not derived.
Most appraisers are probably already doing a qualitative method to develop their opinion of site value. Most appraisers don’t grid land sales and make adjustments. You can do the same thing for improved sales. To demonstrate my point, below is an exercise in The Columbia Institute’s course Survey of the Cost Approach, which is an excellent course for those of you who like the cost approach for a land sales analysis utilizing a quantitative method. Look at the results using this same data set performing a qualitative method
Both methods provide support of $43,400 for the subject property. The qualitative/relative comparison analysis provides the same results without guessing for an amount of single line item adjustments.
In the book Down to Earth, Sanders A. Kahn, Ph.D., SREA makes the following statement about Comparative Sales Grids:
“…it became fashionable for some appraisers, with the encouragement of some public agencies, to rate the degree of variation between the subject property and comparative sales. Quantification of the variations, usually by the use of a plus or minus percentage (or dollar amount) from the comp to the subject, became the vogue.
Actually this method is replete with danger. It looks so scientific, but in realty is only pseudo-scientific and converts subjective judgment into what pretends to be objective mathematical absoluteness.”
Consider analyzing property the way the market does: in a Qualitative manner.
Bryan S. Reynolds is a Certified General Real Property Appraiser and an AQB Certified USPAP Instructor. Mr. Reynolds serves as an adjunct faculty member of The Columbia Institute, and is an approved appraisal instructor in 31 states.
Reynolds is the owner of Reynolds Appraisal Service in Owensboro, KY, providing various residential and commercial valuation services, consulting and litigation support services throughout the area. He can be contacted at (270) 929-3088 or by email at firstname.lastname@example.org