Appraisal Matters

Although most appraisals are done well, from time to time I’m called on to review a report that misses the mark. I started thinking - what is the one thing that makes getting the value right or wrong? What is the one thing the separates a poor appraisal from a good appraisal?

In a word, it’s the ability of the appraiser to learn the "market". Everything else does not matter if the appraiser picks the wrong comparables, and why does he or she do that? They didn’t understand what the market is thinking and how it is reacting, so they picked comparables that were not a part of the market. The best appraisal in the world is garbage without comparable data that reflects the market.

As the number of sales and contracts dwindled from the current recession, there was only one good way to prove that the market was changing. By examining listing activity, days on market and price reductions, the trend in the demand decline became fairly obvious. Withdrawn listings were another signal. As things became softer, for-sale listings became for-sale and for-rent. So the way to make the point was to include a simple table showing statistics such as the increase in for-sale and for-lease listings, increase in days on market and other items that I mention here. A few simple phone calls to popular brokers can detail if concessions were being offered. All this gives factual evidence that markets were changing.

This type of data is important in another way. It indicates that even data in the same market could be outdated. Whereas we could use data that is one, two or even three years old (depending on the quantity of such data, of course) when market values are flat, now data that is even six months old can be outdated.

Lastly, sometimes it’s only one factor that defines a market and it is very easy to miss it. I appraised a regional mall in Ohio that was stigmatized from crime and riots and without doing newspaper research, I would never have caught on that there was stigma. A second example is K Street in Washington, D.C., more famously known as "lobbyist’s row". Even a comparable one block away not on K Street would be at a serious disadvantage because the market recognizes this as a premium address.

So getting the definition of the market correct and picking data that was reflective of the market (even if it requires reporting listings) is the key to getting the value right.

John Simpson, MAI