An Exercise in Exigency: Why Good Research Matters

My wife only sleeps soundly if I start talking to her about my job. The depth of research required to produce quality appraisals is extremely important, but it’s also a snooze fest for most people outside of the immediate profession. So, how do you get people interested in boring things?

One of my college English professors always stressed the importance of establishing exigency early in a paper; that is, make the reader understand early on that what you have to say is important. So, when tasked with blogging about something most people don’t care about, establishing exigency feels like a monumental task. That’s why I’m trying a new tactic: shameless begging. I PROMISE, WHAT I HAVE TO SAY IS IMPORTANT. Stay with me.

Appraisals have a massive impact on the entire global financial system. They’re used in banking and loans, taxes, eminent domain, divorce settlements, conservation efforts—appraisals play an extremely important role in a wide variety of industries. Yet, it’s difficult for most people to really get excited about discussing value unless it’s about something they have a vested interest in. When they do have a vested interest, however, the stakes and scrutiny can be high. This is why thorough research becomes crucial to the appraisal process.

A single appraisal can have substantial ripple effects throughout a market area. We’ve seen several instances in which an appraisal with questionable research and analyses sets unrealistic value expectations for an entire market area. One property owner gets a large payout due to an inflated appraisal value, and word spreads amongst other property owners in the area that their land may be worth substantially more than they thought. So, when the next appraiser comes along—whether it be for a loan or an acquisition and sees that the comparable sales as well as supplemental cost and income analyses all point to a value well below the property owner’s newly inflated expectations—the entire process can become extremely contentious as the market doesn’t support the value being sought.

So, what do you do as an appraiser and a researcher in such contentious instances? For starters, there are some unavoidable challenges in all of this. An appraisal is a value opinion, and there is inherent subjectivity in all opinions. However, the appraiser’s goal should always be to form their value opinion based on objective data and analysis. Forming a supportable opinion requires diligence in digging for every applicable piece of market information that’s reasonably possible to obtain.

In addition to hard data such as closed property sales, it is essential to talk to brokers, buyers, and sellers in a market area to find out what is driving value. What are buyers looking for in this market area for this property type? What are the opportunities and constraints that push property values up or down? How are construction costs and interest rates impacting the highest and best use of properties in the area in terms of financial feasibility? Obtaining as many answers to these questions as possible leads to supportable appraisal opinions, and even if a situation is contentious due to unrealistic expectations, good research and hard data is difficult to refute. We all want our properties to be worth top dollar (unless it’s for taxes), but they are only worth what the market is willing to pay for them.

Understanding expectations going into an assignment is also useful. If clients and property owners have a number in mind, it’s helpful for the appraiser to know about it—not to influence their own opinion of value, but to help manage expectations if what they see in the market doesn’t support those expectations. At that point, communication with the clients and owners is key for navigating the process. If there is additional data or information available, it’s important to keep those lines open to ensure that everything is considered. Whether or not that information changes anything, what matters is getting the number right through diligent research and analyses. Just as a questionable appraisal can set unrealistic value expectations in a market area, a reliable appraisal creates trust with clients and communities, even if their opinions differ from time to time (which they surely will).