Property Selection for Analysis & Statistics
The importance of proper property selection and ‘statistics’ in appraisals…
Appraisers, I would like to direct you to info written by Mr. George Dell in his latest blog post circulated on July 3, 2019. This is one of the best explanations I’ve seen him write on this topic, of how to select and analyze properties when doing appraisals, and why correct ‘statistics’ presented in reports is important.
I first became aware of the importance of proper property selection and ‘statistics’ when I attended an appraiser’s training class in 2008 in Las Vegas. The primary speakers were Mr. David Braun and Mr. Patrick Egger. Both of their presentations gave cogent reasons why statistics and property selection is critical in our work. After returning home, I began including charts and graphs in my reports, and still do. Over the years, I have attended other topical classes concerning ‘statistics’ put on by the Appraisal Institute, and by George Dell.
It is my view that for decades, appraisers have been lead down a primrose path covered and lined with thorns by entities which did not fully understand statistical procedures and correct reporting. These have negatively impacted how appraisers have observed, analyzed and used properties, and other data, in appraisals.
For decades we’ve been told to ‘just select all the properties in the neighborhood’ and “infer” from those how to apply adjustments and other details to comps to derive the subject’s Opinion of Market Value, and maybe even use them as comparables in reports.
The ‘forms’ we have been directed to use also incorrectly “infer” that this process is appropriate.
Then in 2011/2012, if you had been paying attention, the agencies who designed an awful, poorly crafted additional mandated ‘statistical’ reporting form finally realized that what they had been promoting for decades earlier was junk science. Talk about confusion among appraisers! It continues to this day.
What George teaches is to carefully examine and consider the subject’s characteristics, and then select properties to use as comparables which closely mimic the subject’s features and amenities. When you do that, you don’t have to ‘infer’ anything.
Instead, you make direct comparisons to appropriate properties that buyers probably would consider replacements for the subject when shopping for a new home.
This is the direct evidence you need and should use to make a valuation decision. And to demonstrate and visually present ‘statistics’ relating to properties used in reports.
When you do this properly, using “appropriate” properties (that word is in the Dodd-Frank law), it is extremely difficult for anyone to improperly challenge your methodology and value decision.