Value: Relatively Absolute or Absolutely Relative?

“It relativizes the absolute, it does not absolutize the relative.”  The “it” Joseph Fletcher references in his 1966 Situation Ethics: The New Morality is self-giving love (agape in Greek). Fletcher argues that sacrificial love is the ethical criterion through which moral decisions should be made. When applied in Fletcher’s moral framework, this has the effect of relativizing the absolute, whereas legalism tends to absolutize the relative. Fletcher’s quote has sparked more than a little debate among philosophers and theologians, but I’d like to discuss – and maybe even spark some debate about – that concept as it relates to valuation.

What should be considered absolute in valuation, and what should be considered relative? What happens if we err in those categories? What is the guiding principle which should drive appraisers in our decision making? Let’s ponder those questions:

Absolutizing the Relative

In its most basic sense value is always relative. By this I mean that for anything to have value someone must be willing to exchange something else for it. The something which is exchanged is the relative measure by which the value is considered. In real estate, we are accustomed to thinking of this in terms of how many dollars someone is willing to exchange for a property. But we must never forget that price is merely a convenient moniker to represent something much harder to quantify. What did someone exchange to get those dollars…time, effort, risk, delayed gratification? Price is merely a way of absolutizing those more difficult to quantify relative measures of exchange. After all, the time and effort which I exchange for dollars is not equivalent to the time and effort that it requires someone else to acquire the same number of dollars.  

As you can see with the concept of price, it can actually be very helpful to absolutize those relative measures of value. As humans, it often feels good to absolutize the relative. It gives us a sense of control and safety. Let’s consider UAD in general, and UAD 3.6 in particular. The UAD is an effort to take property elements which are relative (view, condition, and quality to name a few) and make them something more absolute. In the move toward data-centric, automation-forward valuation models the absolutizing of the relative is not just helpful, it is required. Automated review tools such as the Collateral Underwriter can’t function without the step of making the relative absolute.

Relativizing the Absolute

Although data science and automation require absolutizing, human behavior reflects a more relativistic mindset. A particular home may be 100 sq ft larger than a comparable property that a buyer is considering. That is an absolute measure, but in order to understand the implications of that difference, a relative consideration is needed. How is that potential buyer going to react to that 100 sq ft? The absolute measure describes the ‘what’, whereas the relative measure defines the ‘so what’. In other words, that 100 sq ft absolutely exists, but its importance to that particular buyer is relative. The question of how much utility there is to that particular buyer can only really be considered relative to the perceived utility of other homes which that buyer has considered (even if that consideration has only been in their imagination). So without relativizing the absolute, any prediction of human marketplace behavior will regularly fail.

Guiding Principle

Just as Fletcher used the guiding principle of agape love for his situation ethics framework, appraisers must also consider our guiding principle. If the guiding principle is ‘consistency’, there will be an error toward absolutizing the relative (in an effort to make data as objective as possible). If the guiding principle is ‘credibility’, there will be an error toward relativizing the absolute (in an effort to recognize subjective reality). In both cases, the imbalance will lead to inaccuracy.  Consistency alone ignores real market nuance and human complexity. Credibility alone ignores the need for actual mathematical and statistical rigor which will also lead to inaccuracy. So, what do I believe is the guiding principle for appraisers?  That can be hard to articulate succinctly, but I think predictive accuracy is perhaps the best goal. Appraisers tend to shy away from the word ‘accurate’, and I think that is a mistake. If an appraiser is building a valuation framework to predict value (whether that be a specific approach to value or type of technique) that framework must be accurate as its goal. If accuracy leads, consistency and credibility will follow.

This guiding principle is both appraiser-centric and data-centric. If your goal is accurate predictions of value, a human appraiser is a must.  Algorithms simply cannot encapsulate human behavior by themselves. At the same time, human appraisers need to acknowledge the quantitative complexity of expressing an opinion of value. Exploring tools and techniques to manage that complexity is also a must.  

My thoughts here are not meant as a conclusion, but as an invitation. Like Fletcher’s ethic, valuation theory resists easy closure. The task of the appraiser is not to choose once and for all between absolutes and relatives, but to live in the tension – always testing whether our frameworks truly predict how markets behave.