Hocus Pocus Magic Focus?

George Dell
Latest posts by George Dell (see all)

Hocus Pocus Magic Focus? We Can Sell It to Appraisers. Appraisers historically have been sold bogus franchises, software, and other magic solutions.

Only $199.95 — Push the enchanted ‘calculate’ button and get ‘correct’ adjustments. Sounds good. It is nice to think that for this small charge, I can save hours and get the right, fully mathematical solution to an adjustment amount. It will be wonderful!

I have seen this marketing plan work many times. They imply “We have found the enchanted formula, a secret algorithm, a sly way to calculate adjustments. In a way that no one ever before us has done! Not other appraisers, not AVMs, not even their PhD-economist-statistician-computer-clever programmers have ever discovered before.”

The purveyors, sensing that they can’t really expect banks, regulators, investors, or the courts to believe “our” magic – ask “How can we make money anyway?”  How? Aha! We can sell it to appraisers. They’ll believe it will work (whether it actually does or not).

The problem is that the same algorithm – called “regression” has been discovered and rediscovered by appraisers and by purveyors of magical appraiser software – many times.

And sometimes the “rediscovery” has been by students in the Stats, Graphs, and Data Science curriculum, who see the special cases where simple regression does work – then reason that it will work for any two variables. IT DOES NOT.

Pushing the magic ‘calculate adjustment’ button does not work. Even if you pay for it! In simplistic terms, it’s like someone convincing you that they have better magic for adding three numbers. “Use our software to add B + C + D to get Adjustment A.” Well, you already knew how to add three numbers. So why pay for it? Because it’s magical, and if you’re paying for it — It must be good!

But it’s not. The algorithm works whether using free software or paid-for seller software. So what’s the issue? The issue is that sometimes you do not need to add B + C + D. Sometimes it is just C + D. Or sometimes it may be A + B divided by C. Wrong model, same algorithm.

In the same way, simple (or multiple) regression only works sometimes, under some conditions. This is a modeling decision to be made by the expert – you. You get paid for your expertise, knowledge, and good judgment. Not for pushing a magical button.

If it were that easy, there’d be no need for you, the modeling expert. Anyone can push a button.

You are paid for understanding:

  • If A and B and C should be the inputs;
  • If A, B, and C should be added in this case;
  • If maybe squaring, adding and square-rooting is better; and,
  • The X, (the result), your thinking process, and explaining the ‘why’ of it to your user.

In the Valuemetrics.info curriculum we provide critical learning on sharpening your judgment, decisioning and explaining models, and free, open-source software, with amazing help available, and a caring Community of Asset Analysts who care. Join us.

Image credit flickr - Nico Dusing
George Dell

George Dell

George Dell is the owner of Valuemetrics and author of the Analogue Blog. He is a graduate of San Diego State University with extensive post-graduate work in Economics, Statistics, Mathematics, Finance, and Information Systems, Certificate level work in Environmental Management and Geographic Information Systems (GIS). George has earned the MAI, SRA, and ASA designations.

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3 Responses

  1. Avatar Bill Johnson says:

    Considering others “coach” for $3,500 a year, the industry is full of snake oil salesmen who for a fee promise they have the answer for your ailment. If you’ve learned anything in this business, always question and investigate those who offer their services.

    With the help of others who spread the truth, although it may take years, eventfully these companies go out of business where their owners may become W2 employees at an AMC.

    Question those who say they have answers for a fee, while they themselves are going out of business.

    Seek the truth.

    8
  2. Avatar Charles R Dettling says:

    I was a Mathematics major in college before I switched to Economics and did very well in Econometrics, Probably & Statistics, and other similar courses. I scratch my head when I see appraisers who are only marginally capable of constructing a coherent sentence claiming to have derived their adjustments by “regression analysis.” SEE Advisory Opinion 37. To quote an old friend of mine, “To err is human. To really screw up you need a computer.”

    2
    • Avatar don says:

      George Dell’s remark: If you paid for it, it must be good, best summarizes the issue and many more.
      Use an engagement contract with every job, defend yourself, insure recourse against defense costs, clarify your client, and your agreed tasks.

      2

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Hocus Pocus Magic Focus?

by George Dell time to read: 2 min
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