You are Not Valuing Property
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.