|For a long
time, most of what it took to make a good appraisal were a skilled,
experienced appraiser and well researched market data. Then came
computers, enabling analysts to handle large volumes of complex cash
flows. Then came G.I.S.
G.I.S., or Geographic Information System, is a representation of
information in the form of a map. We have all had some exposure to the
color coded maps that show us, for instance, per capita income town by
town or the distribution of two tone Buick Rivieras by census tract.
G.I.S. brings into focus what once was hidden. Early applications have
been to assist in matching product to consumer for instance, Starbuck's
outlets to the high income, young adult neighborhoods in which they are
popular. G.I.S. can be paired with multiple regression analysis (number
crunching of large volumes of data) for appraisals: on the West Coast,
systems are already in place to provide valuations of single family
dwellings with accuracy, according to G.I.S. guru Gilbert Castle, in
minutes. Given the slower turnaround time and largely unknown accuracy
of standard appraisals, the product has proven attractive to clients.
Associates has been at work to develop a G.I.S. based industrial
valuation model. Regression analysis is applied to a large data base.
Regression alone can produce price estimates. But our experience is
that location (more than age, construction quality, or land ratio) is
the single variable with greatest influence on value, and its influence
can most easily be shown by map.
map and model produce a series of statistically supported observations:
- the peak of the local market is at Needham on
Route 128; an industrial building here achieves a price twice that of
an identical building on the Industrial Parkway in Woburn and three
times that of one on Turnpike Street in Stoughton
- buildings in well planned industrial parks can
achieve prices as much as double those of similar buildings in nearby
- appreciation in industrial property in Greater
Boston overall has been a negligible 1% per year since the market
bottom of 1992
- central urban locations (Chelsea, South Boston)
exhibit high variation over short distances, versus greater uniformity
over broad stretches of Route 495.
advantages of G.I.S. based analysis are numerous:
- increased accuracy from a large body of data,
versus standard analysis through a smaller number of sales
- shortened turnaround time
- measurement of accuracy by supportable
statistical means (currently, a standard deviation of 14.77%)
- greater objectivity, with virtual immunity of
the system to manipulation on the part of the operator to produce a
with any new technology, G.I.S. based valuation is likely to result in
both unforeseen hazards and unforeseen benefits. Standard analysis that
makes use of a limited number of sales researched in depth will always
have an important place. But where computer and G.I.S. based analysis
prove more efficient, they too will find a place. Tools like G.I.S. are
likely to expand our vision of how markets function in ways that could
not have been guessed.
Eric T. Reenstierna, MAI