Hello, I am excited to continue building relationships and meeting some awesome new connections. For some of those new connections, I thought I would take a minute to share what I am all about these days. Maybe some of my existing connections would like a little update.
Over the past few years, I have been wearing a few different hats. Breaking it down into two:
- Hat 1: I run a small residential real estate appraisal business serving portions of the southern interior of British Columbia, Canada. That is not why I am making this post.
- Hat 2: I have committed to improving the appraisal profession by supporting the development of advanced appraisal analysis platforms based on George Dell’s Evidence Based Evaluation (EBV) through our Community of Asett Analysts (CAA).
If you’d like to save a few minutes reading the WHY and get to the WHAT, I suggest you could skip down the page to about HERE.
My adventure on this path began several years ago when I started following George Dell. There are problems in the Real Estate Appraisal industry but I believe those same challenges are creating an opportunity for change. I had questions, and George prompted those same or similar questions in his messaging. I took his first course in early 2020, Stats Graphs and Data Science 1 (SGDS1). That course introduces appraisers to the language of R for Statistical analysis using RStudio. The content is primarily based on teaching the principles of Evidence Bades Valuations (EBV) with a basic introduction on how to achieve those goals using software developed specifically for statistical analyses.
Wearing the appraisal business owner hat, I had to keep a business running during very tumultuous times. However, I was committed to performing more comprehensive analysis, looking to the future transition to more demanding private appraisal business while focusing on complex assignments. Like many who have taken the George Dell Classes, I just did not have the time to learn R, but I knew there was a future potential to have more advanced tools than what was currently available in the general real estate appraisal practice. I had my son who was working for me as an assistant, take the course(s), there is an SGDS2, and begin duplicating what we had been doing in Excel and implementing more of the tools being shared within the CAA and other opensource packages. Together we were able to prove that virtually any idea or method we wanted to add could be accomplished including, geospatial, GIS, hazard risk mapping, municipal planing, zoning, and other unique data integrations and visualizations.
Before long, this tool began taking on a life of its own, and with the assistance of generative AI to help build more advanced coding, we have been able to develop the foundational beginning of an advanced appraisal analysis and reporting platform.
Much of my initial frustration, prior to finding this path, was that the technology available to appraisers had remained stagnant for years. Without getting into too much of that, I believe it was an unintended consequence falling out of the 2008 financial crisis where, in addition to the primary cause of the subprime mortgage crisis, regulatory bodies found that lenders may have pressured appraisers to support exceedingly high values. The response was to implement intermediaries, into the process. Unfortunately, insufficient oversight into how that could turn appraisers into commodities by focusing on reducing the cost of appraisals to increase the profits of everyone in the channel other than the appraiser.
Lenders are not entirely innocent in this as they also wish to reduce the cost and increase the speed of appraisals with lowered expectations for quality, knowing that appraisers carry most of the liability through their insurance. Lenders also learned from the 08′ financial crisis that they would be bailed out and that no significant repercussions would befall them. The unchecked intermediary model was allowed to carry on until this day however, those issues are finally being more fully exposed. This continued downward pressure resulted in a stripping away of investment into technology and training of appraisers.
The relationship between appraisers and loan origination is not an easy problem to solve. It must be a conversation between all stakeholders. Appraisers absolutely require the backing of other parties most interested in the assurance of impartial, unbiased, expertly developed reports.
While there are some reasonably good tools for appraisers, they are nowhere near as advanced or readily available to all appraisers as they should be. The technology was available to build more advanced software for years, but it was not introduced into the appraisal space. Along with a growing community, we want to change that. That should never be allowed to happen again. Appraisers should remain at the top of the valuation industry, in all aspects, as impartial, unbiased valuation experts.
The time has come. There is growing unrest in the valuation space as it relates to appraisals. Along with many others, I believe that many of the racial bias claims are exacerbated by low-quality appraisals. All of the significant cases that have made the media resulted from appraisals done for lenders. I don’t believe that is a coincidence. Keep in mind none of these claims have been proven. In most cases, the appraiser is pressured to settle as their Errors and Omissions insurers weigh in on the cost of litigious cases, and borrowers are generally happy to get a settlement.
From what I have seen, most of the appraisals were complex assignments fronting busy streets, smaller neighbourhoods with few similar recent sales, etc.. I will provide some further insight on this in future updates.
Some bad actors have also been recently exposed by a committee formed to bring attention to the matter.
The catalyst for change and advancement, I believe, is a push from the opensource software community. Posit PBC, among others, has pushed to embrace the opportunities that a widespread and diverse community of programmers, investors and users can bring to the advancement through opensource initiatives. Posit’s initiatives to embrace the communities of R and Python bring together a powerful force.
At the same time, the GSEs Fannie Mae and Freddie Mac are uprooting the entire ecosystem by throwing away decades of standard reporting formats as they move to attempt to gather more detailed property specific details to create even more advanced AVMs. This will require all appraisers doing this type of work, estimated to be in the 80-plus percent of appraisals, to learn new software. This will have impacts outside of the GSE space as the software used for those assignments is often used for other work with varied formatting. This is imminent within the next two years as per the currently established timelines. The long-term success of this initiative is uncertain however, in the short term, it could very well be a significant disruption to the status quo.
The What.
How can all these forces work to benefit appraisers and others? In addition to the viper pit caused by the competitive nature of the current model, appraisers are largely lone wolves due to the nature of our position to act as impartial, independent parties. That further divides appraisers from standing together to improve their working conditions. It doesn’t have to be this way. Through evidence-based valuation, personal opinion or bias is minimized, allowing appraisers to share the evidence they have uncovered more openly. Rather than defending an opinion, we can explore the data and share insights. I believe there is immense potential to provide the valuation industry with more transparent and equitable insights by leveraging advanced tools such as geospatial and GIS mapping packages, along with various other measurable factors that influence market value.
I am hopeful that we can build a community of contributors to build upon this opensource model. There are a number of variations of how to ensure sustained interest, investment and, ultimately, benefits. I will continue to reach out across isles, to my peers, to other industry stakeholders, and to other experts who may be able to see the opportunity to contribute and benefit.
Finally, open source does not mean free. It is not an entirely philanthropic concept. There is an opportunity for benefactors and contributors on many levels to see returns.
- Certain associations may see the benefit of ensuring their members have the best tools available to improve competence and deliver learning and education opportunities that more advanced software can offer.
- Government agencies can look to ensure transparency and oversight are effectively managed.
- Lenders can increase their confidence in risk analysys and other market insights, in addition to the speed at which appraisals can be completed when appraisers have the very best tools available.
- Real estate agents and brokers will also benefit from more competent and effective appraisers, in addition to the market insights appraisers can provide to that community.
- Mortgage brokers can streamline the lending process, again due to the increased efficiency of appraisers.
- Professions outside of the appraisal and lending space may also be able to benefit from tools developed to simplify and standardize more advanced valuation techniques.
- There is also a crossover between Ad Valorem, Mass Appraisal and general Appraisals. Once users become familiar with the core functionality, the ability to introduce machine learning and other advanced modelling can be implemented for advanced insight.
- Appraisers can increase profits while increasing competence and expanding into more demanding types of assignments. New entrants with a backgound in coding can apply their skills to build out new components while building experience and relationships in the real estate space. Mentor appraisers and firms can expand their business as the consistency and reproducibility of evidence-based analysis and reporting allow for greater scalability.
- Finally, the general public, the ultimate consumers of our products, will gain greater confidence and understanding of the appraisal and valuation space.
Opensource software does not need to come at the cost of privacy and security. A properly developed opensource platform allows for even greater transparency and security.
Opensource can also be operated under an OpenCore model. This type of model allows for a robust core platform, which serves as a basis for the essential tools that can be expanded upon with plug-in style optional features. This can allow for a more diverse tool with advanced functionality for users with expanding needs.
As the CAA takes steps to define its role as an association committed to ensuring the fundamentals of EBV are bolstered, I am doing my part to support that initiative by highlighting the opportunities our community can offer to the world of valuation.
Please follow along, share your insights, express interest, ask questions, and share with your connections. If you are in the valuation space or interested in taking a deeper look into the opportunities, consider taking the initial steps to join the CAA. and I hope to see you there.
Whether you decide to join the CAA or not, please subscribe below to follow and hopefully become a part of this journey.