Geographic “Data” Competency?

I recall receiving MLS books once a month and being thrilled that a whole new population of sales were available to be considered within the pages of each book.  By the time I got the new book, the sales were already a bit dated, and since they were only closed sales – they had actually sold a few weeks to months prior.  Each month there was a new book, but every 6 months, there was a combined book with the last 6 months of sales in one bound and printed book.  It was a great day when that set of new books arrived in the mail!  

During the same timeframe, I paid for and received paper plat maps that were updated quarterly and I subscribed to and paid for paper FEMA flood zone maps that would get mailed each month or so.  And of course I always purchased the new Hudson Map Book when it was printed each year.  

All of my data sources were very local and included only those areas that were close enough to physically drive to and complete an appraisal.  

I couldn’t imagine receiving data in that manner or format today.  All of the data needed by an appraiser is available in a digital format and made readily available on-line.  No more mailing, no more delays and no more dated data.  What we have today is a huge improvement from what was available years ago.

Today all of the MLS listing data we need to complete an appraisal is at our fingertips along with tools to help us better understand the data.  Tools that can complete regression analysis, aggregate large data sets, and create heat maps are all available online.  Additional data sources like aerial imagery, noise maps, air traffic maps, zoning maps and many others, again are all available online and most time free of charge. The easy access to much more data makes becoming geographically competent very easy, if the appraiser understands the tools and data available.

Competency has been a fundamental component of the Uniform Standards of Professional Appraisal Practice (USPAP) since its inception. The concept of competency has always been integral to ensuring that appraisers possess the necessary skills, knowledge, and experience to perform appraisals competently. However, USPAP has evolved over time, with updates and revisions to further clarify and emphasize the importance of competency standards for appraisers.

Geographic competency was introduced into the Uniform Standards of Professional Appraisal Practice (USPAP) in the 2000 edition. This addition emphasizes the importance of an appraiser’s familiarity with the geographic area in which they are appraising property. It is intended to ensure that appraisers have sufficient knowledge of local market conditions, data, trends, and regulations to produce accurate and reliable appraisals.

My question today is, does an appraiser have to live in a particular area to have geographic competence?  With the plethora of data available today, could an appraiser living hundreds or even thousands of miles away gain sufficient knowledge of local market conditions, trends, and regulations to produce accurate and reliable appraisals?  

And could it actually be a benefit to not live in the immediate geographic area?

Over the past three years, I believe appraisers, as an industry, have been uniformly and unfairly cast as racists.  To date there have been hundreds of complaints of appraiser bias, yet no adjudicated cases.  Most, if not all of the complaints stem from “low” appraisals being followed by “high” appraisals – ironically, all of these appraisals were performed by appraisers that lived in close proximity of the subject property and were deemed to have geographic competency.  

Living in close proximity to a property may intuitively sound like a great idea.  Appraisers are familiar with the local neighborhoods, new subdivisions, commercial developments, schools, etc.  On the other hand, the familiarity with these elements may be based on subjective, anecdotal, emotional or non-factual, and non-data driven reasons.  

For those of you who know me know I have a strong bias towards spaghetti, regardless of the type of noodle or sauce, it would be my first choice on any menu.  For me, spaghetti is far ahead of what others may prefer, like seafood, or burgers.  If I made menu choices based on data driven reasons, I would be selecting low carb, low calorie and high protein items, but personally, those would not be my preference.  

When doing an appraisal an appraiser may subconsciously think a school district is better or more preferred because the football team always win the state championship, or that it is where he or she attended?  It could be that an appraiser doesn’t like certain styles of homes, or small yards, old houses, or whatever it may be.  None of these subjective and unsupported things have any place in an appraisal report, yet it is quite natural to assume that we all bring our unconscious biases to what we do on a daily basis.   

Geographic “Data” Competency refers to an appraiser’s ability to effectively understand, interpret, and utilize geographic data in the appraisal process. In the context of real estate appraisers, it is essential for accurately valuing properties and providing credible appraisal reports. Here’s how geographic “data” competency relates to real estate appraisers:

• Understanding Local Markets – Appraisers cannot make unsupported assumptions, so information about market trends and adjustments must come from data.  Appraisers should consider supply and demand, market trends and other relevant factors, none of which should be based on assumption or bias or “local market knowledge”. 
• Analyzing Neighborhood Characteristics – With aerial imagery, zoning, land use, public transportation routes, and other neighborhood characteristics being readily available online, appraisers can quickly familiarize themselves with the neighborhood.  They can identify natural boundaries, large highways that separate neighborhoods, and most importantly, from the sales data identify disparate price per square foot, year built, school districts, median square footage and other relevant characteristics to identify similar neighborhoods.  Even from hundreds or thousands of miles away.
• Selecting Comparable Properties – It is crucial for appraisers to choose comparable sales based on relevant characteristics such as; size, year-built, style, number of bedrooms, baths, and amenities.  All of these items are data points in the MLS and the selection is a data driven process.  
• Utilizing Technology and geographic information systems (GIS) – With all of the advancements in technology, and widespread availability of data and analytical tools, appraisers can access a wealth of data and knowledge.  Being geographically data competent requires the appraiser to proficiently utilize technology in the appraisal process to gather, analyze data and present their opinions effectively in the appraisal process. 

 

Considering how accessible and how much data there is today, it is imperative to update the definition of Geographic Competency and relinquish the thought that an appraiser must be within close proximity to the subject property.  More reliance and weight must be given to an appraiser having the requisite knowledge to analyze the data and experience with technologies to gather and interpret the data.

In order to keep up with the new technologies and the increased access to and breadth of available data, I would suggest to the Appraisal Foundation, or whomever controls USPAP going forward, consider an addition to Geographic Competency in USPAP to includes the term “data” and further emphasize that Competency in general includes knowledge of and practical application of new and emerging technologies and analysis of data.