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
24 Thorndike Street
Cambridge, MA 02141
Eric Reenstierna Associates LLC is a real estate appraisal firm taking on valuation and consultation assignments in Greater Boston, Massachusetts and New England. Eric Reenstierna, MAI, is the office's principal and is a commercial real estate appraiser.
24 Thorndike Street
Cambridge, Massachusetts 02141