They say, "A picture is worth a thousand words" and since we live in a world that is visually oriented, we tend to assume that those that may be statistically challenged will easily grasp our concepts if we present the same data in graphs vs. the numbers and words alone.
Analysts use the terms mean, median and mode to define measures of central tendency and regression techniques (linear, polynomial, etc.) as methods to model and display the trends the data may indicate over time.
While appraisers know what these terms define and how regression analysis can be used to display the trends and findings of data in a graphical format, I think we take for granted that others outside the profession (and those inside as well) have the same comprehension of statistical analysis tools that we do.
The real question is "do they"?
What I've discovered is that despite my best efforts to keep them simple and straight forward, many if not most, cannot quickly grasp the concepts or easily (without lengthy explanation) get on the same wavelength as the graph's creator.
Moreover, I found that those creating the graphs can easily (by choice or accident) "misdirect" or "alter" the representation of the data (and therefore the client's comprehension of the same information) by using different methods to present conclusions (in the form of linear vs. polynomial trend lines), inflation adjusted prices (Case-Shiller indexes) vs. nominal prices, etc.
This brings me to an interesting point. If we create the graphs to assist the client in understanding the trends, data, adjustments etc. and the client is confused (as a result of the presentation without sufficient explanation of the methodologies, etc.), in creating the graph have we assisted the client or have we further contributed to the problem of a confused and misinformed marketplace?
One principle drilled into me at an early point in my career was to develop a communication style that would lead the reader of the report to the same conclusions as the author. Essentially, the underlying principle of appraisal reporting is that "the appraiser's task is to communicate their findings in a manner that is readily understood".
Communication of the appraisal is no simple task and while statistical analysis and charting tools available to today's appraiser are vastly improved when compared to those of days past, we cannot automatically assume that "intended users" possess the same analysis and comprehension abilities as those of us that use this type of presentation in our reports.
From the Appraisal of Real Estate, "An appraisal report leads the reader from the definition of the appraisal problem through the analysis and relevant descriptive data to a specific conclusion. The appraiser must present all facts, reasoning and conclusions clearly and succinctly."
The preamble of USPAP states, "It is essential that a professional appraiser arrive at and communicate his or her analysis, opinions and advice in a manner that will be meaningful to the client and that will not be misleading in the marketplace."
USPAP Standard 2-1 states, "Each appraisal report must contain sufficient information to enable the person(s) who are expected to receive or rely on the report to understand it properly".
While appraisal educators and instructors have developed good courses to introduce statistical analysis and graphical data display techniques to appraisers, in my mind there are questions that remain regarding the inclusion of highly complex graphs in a residential appraisal report, without some corresponding narrative to enable the reader to understand the basis of the methodology and therefore the conclusions displayed in the graphs.
Over the past several years, many appraisers have been exposed to and have embraced the wonders and benefits of statistical analysis, graphing and charting. They have learned new tools and many have introduced the output of those tools to their clients via addenda in the URAR.
While statistical analysis tools are useful for understanding the market trends and beneficial in communicating the appraiser's analysis to the client, USPAP standards and good appraisal practice require the appraiser to communicate their findings in a manner that the client or intended user can comprehend.
This places an additional responsibility on the appraiser. Keep it simple and include sufficient narrative with your graphs and charts so that the intended user(s) can arrive at the same conclusions that you do.
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AUTHOR: Patrick Egger is a Certified General Appraiser in the State of Nevada. He authors and instructs courses for real estate appraisers and real estate agents on Housing Market Analysis, Appraisal Techniques and Communicating the Uniform Residential Appraisal Report. He can be reached at [email protected]
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