You are Not Valuing Property

Dustin Harris

Dustin Harris

Certified Real Estate Appraiser at The Appraiser Coach
A multi-business owner and residential real estate appraiser. He has been appraising for nearly two decades. He is the owner and President of Appraisal Precision and Consulting Group, Inc. He owns and operates The Appraiser Coach where he personally advises and mentors other appraisers. His principles and methodologies are also taught in an online, Mastermind group. He and his wife reside in Idaho with their four children. Dustin Harris in e-AppraisersDirectory.com
Dustin Harris

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Thousands and thousands of decisions determine value - Value Real Estate

Thousands and thousands of decisions determine value.

What do you do for a living? I am a real estate appraiser.

What does that mean?  I value real estate.

Actually, that is not quite true. Okay, technically it is, but what is the value of real estate really? Real estate is given a value only based on what a seller is willing to settle for and a buyer is willing to part with.  Of course, it is much more complicated than that (which is why appraisers are so needed), but that is the gist of it.

For a moment, I want you to think about the psychology of valuation. We often look at our job as the process of looking at data, discovering trends, and interpreting what a house or property would likely sell for in the present market. Yet, where does that value point come from? Decisions. Decisions of buyers and sellers in that marketplace. Thousands and thousands of decisions determine value.

Appraisal is not so much about pinning a particular number on an address as much as it is about quantifying the decisions of buyers and sellers in a particular area.  Let me say that again.  The process of valuation is not about deciding the price a particular home will sell for, but rather studying the numbers behind how people react with their dollars to certain aspects of real estate.

Of course, everyone reacts differently to a given circumstance which is why appraisal is not an exact science.  You can never say that a deck is worth $2,000 all of the time in this area, because sometimes it is and sometimes it isn’t.  Some buyers will pay more or less for a particular item.  Some buyers will pay a given amount for an item on Wednesday and more for that same item on Friday.  This is one of the reasons true, paired-sales analysis does not exist.  About the only thing we can do is quantify how an average buyer might react to this item or that situation given enough data.

Why is this important? It is wise to step back from the trees once in a while to observe the forest. In our day to day of inspecting houses, finding comps, making adjustments, and reconciling data, it is easy to get caught up in process and forget what it is we are actually doing. Appraisers do not determine value and appraisers are not deciding what a particular home will sell for. Rather, we are more related to a social scientist than a Realtor®. We see the decisions that others make in a marketplace and project that data (past performance) on our current assignment.

Knowing this information might also cause us to be a bit more humble in our station. An appraiser has an important job, no doubt, but we are not the movers and shakers in a marketplace that some (mostly in the media) tend to think we are. Whenever I see an article blaming the appraiser for high or low values, I have to chuckle just a bit. They sure think we have a lot more power than we really do.

Image credit flickr - GotCredit
Dustin Harris

Dustin Harris

A multi-business owner and residential real estate appraiser. He has been appraising for nearly two decades. He is the owner and President of Appraisal Precision and Consulting Group, Inc. He owns and operates The Appraiser Coach where he personally advises and mentors other appraisers. His principles and methodologies are also taught in an online, Mastermind group. He and his wife reside in Idaho with their four children. Dustin Harris in e-AppraisersDirectory.com

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2 Responses

  1. bubba jay bubba jay says:

    i also have a big issue with the so-called paired-sales analysis concept. where i am from, NOTHING is exactly the same. i can count on one hand the number of small neighborhoods in my area that are alike, but other than that, there is nothing. are two different people always going to see the same value in a finished basement or a built-in pool? are two different people always going to see the same value in a finished basement or a built-in pool, even in a neighborhood that is full of homes that are exactly alike? absolutely not.

    just because a comp has a finished basement, doesnt mean it has a “finished basement”. how big is the finished basement? whats in the basement – bedroom(s), bath, theatre, workout area, etc? what are the quality of the improvements? what kind of flooring is in the basement? was the basement finished by the homeowner or was it done professionally? the list can go on and on. has anyone ever seen two finished basements that are exactly alike? i havent.

    how about a built-in pool? how big is the pool? how deep is the pool? how big is the patio around the pool? is there landscaping around the pool? how big is the fencing around the pool? what kind of fencing is around the pool?  was the pool area finished by the homeowner or was it done professionally? the list can go on and on. has anyone ever seen two built-in pools that are exactly alike? i havent.

    like Dustin wrote – this is not an exact science, never has been an exact science, and will never be an exact science. some people just dont understand that we arent torquing nuts on an assembly line at GM here. after also being a realtor for a decade, i can tell you that people ARE willing to pay more for a big deck that has multiple stories, composite materials and fancy woodwork, than a deck that is one-story, wood and 100 sf. even common sense tells us that this is what anyone would do, and what we as buyers would do. in our reports, we should be allowed to make any adjustments freely, and be able to make adjustments that we feel are appropriate and reasonable, without having to somehow always prove everything. because there are so many variables, appraisers trying to determine exact adjustments for every little detail in our report, is in all reality more often that not, never going to happen.

    the bleeding continues . . . . .

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  2. Tom D says:

    great, great article.  even writing a report one needs to understand psychology to make a happy cu.  anyone who was in real estate understands that buyers buy their hot buttons.  i personally don’t think buyer’s think like appraisers have to write a report.  i understand we have to be able to show some number for buyer’s emotions, but if buyers had to deal with all the minutia, we currently do to determine the buying price, they could never buy a home.  probable pass out from the pains in their head.  this is where appraising should be going, not bracketing.

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