Transparent & reliable: critical components of any appraisal - by Steven Elliott

Steven Elliott, Elliott Gottschalk & Associates

So, what’s happening during this summer of highs and lows? Red Sox up, Red Sox down, Patriots down, Patriots up, Olympics up, Olympics down, real estate market up, real estate market down, presidential elections down, down and down, with no bottom in sight. At least the Federal Reserve has the good sense to not mess around with rates, despite their rumblings of planned increases.

Too much uncertainty throughout the world what with Brexit, terrorist attacks and out and out crazy people doing crazy things one doesn’t know where to turn. The fact mortgage rates are continuing to bump along the bottom bodes well for both residential and commercial markets, however, the refrain the “party’s over” should probably be changed to “it’s almost over.”

I have been having a pretty good laugh over the ongoing articles about how appraiser’s values are lower than the property owner’s values. What a shock, I mean really? The most recent article indicated there is a whopping 2% difference between the two camps opinion of value. A little further research indicated that there is something out there known as the Nation Home Price Perception Index – Who knew???? Well it’s there for our consumption and analysis. The offshoot is the Home Price Perception Index (HPPI), also an interesting dataset. The HPPI from May 2016 shows appraiser’s opinions of value are slightly higher than the property owner’s opinion, by less than 1%, here in Boston. The largest positive differential is in Denver where appraisers are 3% above owners, while the largest negative differential is Detroit where it is 3% lower. I was surprised to see Chicago also had an almost 3% negative differential. In Boston, the positive differential has been falling when it was almost 3% in 2015. Very interesting to see what we as professionals are perceiving as opposed to what the public is perceiving. The July report shows minimal changes with Boston at 0.44% down more than a full percent from June of 2015 when it was 1.78%. The current “loser” is Philadelphia, which jumped just slightly ahead of Detroit, with Baltimore less than 1/10th of a percent behind. Not sure what all this means but I think the good news is we, as residential appraisers, are performing as good if not better than at any time in the past.

I would be remiss not to mention the passing of Karl “Chip” Case, economics professor at Wellesley College and founder of the Case-Shiller Home Price Index. Since his passing this past July, the tributes and accolades have been extraordinary. So many giants in the real estate industry and beyond acknowledged all that he and Bob Shiller did in terms of taking very obscure and oftentimes difficult data and information and make it understandable. Their research was also invaluable, if only enough people had listened. As the article in the New York Times stated, “Both men warned before the recession that the housing market was getting ahead of itself. Mr. Case presciently sounded the alarm about the danger posed by rising subprime borrowing in the decade before the financial crisis.” There were so, so many quotes that could be included here but I think two stand out. The first was from Bob Shiller, who said about his partner, “He was more connected to the business world than most academics. He also talked to people in the real world, like home appraisers, in order to isolate data for housing prices, which wasn’t easy.” Imagine that, home appraisers, well I guess maybe we are important. Especially, when you look at this other quote, “What Case and Shiller put together is really the gold standard for price changes in the housing market,” Edward Glaeser, a professor of economics at Harvard, said in an interview. “It has the beauty of being both transparent and reliable.” HHHMMMM – Transparent and reliable…. two critical components of any appraisal. I guess it still does, always has, and always will boil down to the two key components any professional appraiser must possess, ethics and competence.

Gee shouldn’t that be something our politicians should strive to achieve?

So folks enjoy the rest of the summer. I know it’s going to be almost impossible to choose but you still need to get out and vote.

Good luck and God help us all! 

Steven Elliott, SRA, MRA, is principal at Elliott Gottschalk & Associates, Ashland, Mass.