appraisal a science, or is it an art? One school of thought says that
value is in the eye of the beholder, and the eye of the beholder sees
things personally. The value of a house depends in large part on
personal perceptions: curb appeal, the use of color, the "feel" of a
room. These things are subjective. To take account of them requires
appraisal as art.
What, then, are we to make of the fact that, in a given neighborhood,
though some housing may be renovated Victorians and other housing new,
open floor plan lofts, we find a high degree of price uniformity?
Appraisal is about statistics, says this second school of thought: the
price per square foot of this, the vacancy rate of that. Statistics are
science. Appraisal, then, is science. Art or science: which is it?
The history of the world for the last five hundred years has been the
general expansion of science into voids that were formerly filled by
pseudo-science. Once, doctors diagnosed illness through the perception
of "ill humours." Today, if your doctor suggested that your medical
problem lay in ill humours and came at you with leeches, you would be
out the door and looking for a new M.D.
If appraisal today, despite the wealth of statistics that are available
to the real estate analyst, remains something less than a science, it
is for a reason. The reason, in short, is that some don't want it to
be. Here are some barriers:
- general math phobia
- courts that historically influenced appraisal in the direction of argument rather than objectivity
- banking regulatory agencies that define the minimum level of
acceptability for statistical analysis in appraisals at a level that is
just that: minimal
The result is an environment in which practitioners can present a work
product and call it an appraisal when it may present only a limited
analysis, make use of only a few comparable sales when dozens may be
available, and not address at all such descriptive information as
range, margin of error, and probability.
Yet appraisal as science does exist. It exists wherever an appraiser
makes use of broad statistical data rather than limited anecdotal
evidence to estimate vacancy, operating expenses, and capitalization
rates. It exists in its most advanced form today in mass appraisal
techniques, where an appraisal company that may be assessing all the
houses in a community for tax purposes applies multiple regression
analysis to hundreds of market sales to create a model capable of fully
describing any one property's value.
Appraisal as art is threatened by appraisal as science. Appraisal as
art - the evaluation of the intangibles in real estate - will always be
a necessity. And appraisal will always require the judgement of an
appraiser - if only, in some instances, to evaluate the output of a
But appraisal as science will grow. Appraisers will use it to their own
advantage and to the advantage of their clients. Appraisers can't hang
onto pseudo-science any more than doctors could. We will let go of
pseudo-science. That will happen. Inevitably.
Eric T. Reenstierna, MAI