The Valuation Analyst

Research in Extracting Adjustment Rates *

By David A. Braun, MAI, SRA, AI-GRS

INTRODUCTION

I want to welcome you, on this exciting journey to a better understanding of the analysis techniques and methodologies that apply directly to the extraction of line-item adjustment rates. This material is about understanding the strengths and weaknesses of adjustment extraction techniques; it does not provide step-by-step directions on how to perform all of these techniques. The appraisal profession is currently facing an issue as the providers, users, and law enforcement bodies have differing opinions on the proper level of the scope of work required to adequately support the line-item adjustment rates that are applied on a quantitative comparison grid. This uncertainty has set up a self-perpetuating loop that is deteriorating the credibility of appraisal and reports. Appraisers, who are unsure of the number and types of analysis techniques that should be employed when extracting adjustment rates, are reluctant to bring attention to the analysis process they performed. In this situation, even if the appraiser performed an acceptable scope of work to extract an adjustment rate, the lack of reporting trends to erode credibility from the user’s perspective. The uncertainty concerning the due diligence necessary to extract adjustment rates is a real and significant problem in the appraisal profession today. The reason for this uncertainty is that little empirical study of extraction methodology and techniques has been performed. Historically, the profession has used study material based on “perfect” datasets. These hypothetical datasets illustrate the theory of the concepts well, but are not realistic from a practical perspective. The nature of real property markets is anything but perfect. They are teeming with randomness, which makes exacting adjustment rates inherently difficult.

Do the traditional extraction methods and techniques work? Are statistical analysis methods appropriate for real property valuation? Are appraisers performing these methods and techniques correctly? Are any adjustment extraction techniques available that we don’t currently know about? The purpose of this writing is to carefully consider these questions. The exploration of these questions will lead to the most pertinent question: When has the due diligence, in supporting and explaining adjustments, been satisfied in an appraisal? To answer these questions, we will go farther than just to the text books on appraisal principles and standard statistics; we will delve into theory, testing, and conjecture; entering the world of scientific research. In order to gain the most from this material, it is best to leave any preconceived opinions behind.

This book addresses: statistical foundations, market modeling, critical decision making, the science of data management, the nature of an adjustment, selection of single-point adjustment, extraction methodologies, and the application of these techniques in eight case studies. The research presented serves the appraisal profession much as a lighthouse serves a ship. The concepts revealed from the empirical approach used suggest that the appraisal profession is off course.

*Please contact author directly.

David A. Braun, MAI, SRA, AI-GRS
Automated Valuation Technologies, Inc.
439 Sun Valley Drive
Maryville, Tennessee
www.AVTTools.com
865-679-4785