Louis J. Pitoni, SRA, RAA, is the owner of Woodland Appraisal Group in State College, Pa. He is an active member and director of the Centre County Association of REALTORS® and the Elk Cameron Board of REALTORS® and currently serves on the National Association of REALTORS®’ Real Property Valuation Committee.
Residential Appraisers: Data Scientists, Artists, or Quacks?
Good analytical techniques, good data, and good judgment are all key to accurately appraising a home.
December 9, 2021
“How on earth did the appraiser come up with this value?!”
Was the value contrived based on his or her feelings and intuition? Was it parsed with multilinear regression analysis? Or did the appraiser just make it up and collect the fee?
Well, I don’t blame you for asking. To sort out what appraisers are, let’s look at what they do.
Real estate appraisers write reports about both what they see and hear at the subject property and what their extensive market research reveals. These reports must not mislead, and the arguments must be well supported. And in the end, appraisers must sign their name to a conclusion and accept liability for it. Every party who is aware of the appraisal generally has a specific desire or agenda for the outcome of the process, yet the only things that appraisers can allow to influence their conclusion are the facts. The facts must be verified and cross-checked; appraisers often must visit the value indicators (the comparable sales) in person. They must weed out false and misleading data. They must explain themselves well.
The best appraisal is an accurate and well-informed appraisal. Always. If an appraiser is led to believe something that is not true or is given partial truths, his or her appraisal may not be accurate. This hurts everyone. Among the negative consequences of a misinformed appraisal are confusion or anger on the part of buyers and sellers, unwanted contract renegotiations, unwarranted denials of mortgage applications, and of course the risk bad loans pose to nationwide economic stability. When people or institutions rely on an inaccurate appraisal, they may make poor decisions. Those decisions can cause grief for years—even decades.
What does this mean for non-appraisers? Help the appraiser to be accurate. What was that? You may have just heard, “Help the appraiser to share my opinion,” but no, that wasn’t it. The best thing to do is to help the appraiser to be accurate. Some good appraisers will ask many, many questions. Other appraisers, who are equally good, will ask far fewer. Whatever the case, give the appraiser the facts, without trying to steer him or her.
What should you provide to the appraiser? Appraisers have access to all of the MLS and assessment records; they're hired to research the market well enough to understand the universe of local market data. As a result, the most important information you can provide falls into three categories:
- Unique attributes and history of the subject property.
- Specific and thorough details of non-MLS transactions of comparable properties.
- The hard-to-pinpoint motivations of parties involved in specific comparable transactions.
Regarding the motivations of market participants, these are unrecorded details that are key to accurate appraising in markets where human behavior can vary widely. Agents cannot convey everything they know about every transaction, but they can offer to take an appraiser's call any time. When you do take a call from an appraiser, candidly convey a complete picture as best you can. Resist the temptation to adjust what you say to influence the outcome. Appraisers are trained to assess the quality of the data they receive, and if they detect that a data source is biased or unreliable, they may stop trusting it entirely and this could negatively impact the accuracy of the conclusions. What's more, you may think you are saying something that suggests a higher or lower value for the subject when the exact opposite is true.
So are appraisers data scientists? Not usually. They take in everything they can and use analytical techniques and good judgment to quantify the intangible value market participants will assign to the place they will call home.
Are appraisers artists? Ha! No. They use judgment and insight to report in an unbiased way. If there is any art, it might be in collecting the facts upon which they base their conclusions.
Are they quacks? It is understandable that you may think so. Appraisers are most at risk of seeming like a quack when they offer opinions based on poor information. This happens most often … wait for it … when they are provided with poor information. The more accurate the data, the better chance the appraiser has at insightfully modeling the market's behavior.
If we need to sum up what appraisers are, we could say they are the eyes and the ears for their client; they listen, investigate, analyze, conclude, and report. Appraisers will serve your interests best when they have complete and accurate data.