Automated Appraisal

In the not too distant future, much of real estate appraisal will be done by automated means. The appraiser (or, for that matter, anyone who wants to analyze the value of a property) will sit at a computer terminal on a network and, simply by entering an address, be able to call up all the information about a property how big the building is, when it was built, everything the Assessor knows about it, its zoning, the plan of the lot that is available as public information. The computer will choose sales or leases for comparison. Expert systems available to the user will work over the data to generate value conclusions. Automated appraisals will be quicker, less expensive, and at times even more accurate than appraisal done by traditional means.

Automated appraisal has already arrived. Valuation experts are familiar with at least one method in common use: construction cost analyses available from the Marshall Valuation Service and others, "on line." Automated appraisal is on the minds of residential appraisers. Systems that make use of data sorts to search large data bases of sales of single family houses for the best "comps" and that generate value conclusions from those were begun in the Northwest and have spread east. Commercial appraisal is more complex. But with accurate data, transferring these same methods to commercial property valuation is only a further step.

There are many possible methods of automated appraisal. Each follows a basic model: Data Collection, Defining the Market, Database Search, and Analysis of the Data. Any automated appraisal method (as well as the traditional methods) relies on the collection of market data. For automated appraisal, the more comprehensive the data and the more easily retrieved, the better. As with any data reliant system, accuracy of the data is important. Next, the model must have a way to define the market. What information should be retrieved for analysis? What methods of analysis are appropriate? The automated appraisal model analyzes the data using any of a variety of tools, including multiple regression analysis of sales and GIS, or Geographic Information Systems. When multiple models are in use, one can be used against another as a check for accuracy.

Automated systems may be stand alone products. Or, like computer based tools that have gone before them, they may be incorporated into appraisers' work product. Appraisers already employ many computer assisted methods, including discounted cash flow spreadsheets, on line data retrieval, and word processors. Appraisers who have access to automated appraisal tools will be able to do their work faster and better for their clients.

With technology costs coming down and data becoming more widely available, the time for automation is ripe. Any information based industry is vulnerable to sudden change as technology changes the way data is handled. Appraisal has changed. Databases are under construction and valuation models in design. Automation of commercial appraisal (as with automation in any industry) will free us from old tasks and open new doors. It is only a matter of time before commercial real estate appraisers find the means to deal with the challenge of automated competitors, just as their residential counterparts now do.

William T. Whiting, Jr.