The purpose of an appraisal is to put an accurate value on a property.
"Accurate" means what the property would sell for if it were put on the market.
If accuracy is important - which it is, as it is at the heart of what appraisers
do - we would think that someone would be testing us for it. But no one does.
Appraisers are rated on style points. Did the appraisal include all the
necessary assumptions and certifications? Did it include all the prescribed
methods of analysis? Did it include comparable sales from the allowed time
frame? Does the appraiser have credentials? Does the appraiser have years of
experience? All those things are great. But they are a side show. Does the
appraiser have a track record of predicting selling prices with any accuracy?
That's the main event. And it is the question that no one asks.
If baseball were played by rules like those that govern appraising, batters
would be judged by whether they swung in the recommended manner, whether their
swing plane was level, whether their feet were positioned properly, and whether
their swing was timed to the pitch. Whether they actually hit the ball would be
irrelevant. Batting averages wouldn't matter, and neither would other metrics
like on-base percentages and runs batted in. The batter would be awarded first
base if the umpire determined that he or she had swung correctly. The game
would be decided on style points.
Whether anyone would want to pay to see a game like that is dubious. No one
would watch that game. It misses the point: who can hit the ball?
Every appraiser who cares about the accuracy of his or her work keeps an eye on
the eventual selling prices of the properties they have valued. A common
situation is an appraisal for an estate. When a property's owner has died, an
appraisal is engaged for the estate. In situations like that, the property is
often sold. Presuming that the time lag between the date of the appraisal and
the date of the sale is not long, the difference between the selling price and
the appraised value is a measure of accuracy. Sometimes there is no difference:
the appraisal has been taken as gospel by both the seller and the buyer.
Metrics like that are useful, but they are private to the appraiser and the
parties to the estate. They are never known by those who need to know them
most, the people who hire appraisers.
What would help to rate appraisers for accuracy would be a valuation
competition. A retail strip in Kansas City is put on the market with the
understanding that it will be sold within two months to the highest bidder
whose offer is without unusual contingencies. A competition is set up for
appraisers and, really, anyone who wants to try to predict the eventual price.
The winner gets $1,000 and bragging rights. Do this once a month in different
cities across the U.S. By the end of a year, a good reading would be available
of various appraisers' accuracy. It could be that the competition would be
dominated by the most experienced appraisers. Or, it could be that a newcomer
wins. It happens in baseball: the rookie becomes the MVP.
Of course, the chance that anyone will sponsor a competition of this kind is
small. The major appraisal organizations historically have seen no need to
measure the work of their members for accuracy. They are unlikely to start now.
It would take a less tradition-bound organization to make this move.
What if someone did? Then we could know: how good are we?
Eric T. Reenstierna, MAI