As with beauty, value is often in the eyes of the beholder. Each party in a commercial appraisal transaction brings their own biases and opinions of value to the table. It might surprise you to know that they aren’t always predictable. You would expect lenders and loan officers to be biased in favor of a higher value while appraisers tended to the low side. Admittedly, this is true much of the time. But you’d be surprised how often I see just the opposite occur. Believe it or not, some lending institutions want an unbiased opinion.
There are standards to which most commercial appraisers aspire. Namely, an unbiased opinion. While this is an admirable goal, I have long contended that it can’t be achieved. We ALL have biases. The simple act of presenting information in a report is an act of bias. We don’t have to have bias with respect to the parties involved but by including information in the report, we often exclude information that conflicts with our own opinion. Again, this is bias. We attempt to present an educated and defensible opinion of the value of a property.
People sometimes have honest disagreements without having ulterior motives. One question worth consideration is how we handle data that conflicts with our own opinion. There are occasions when the information is dismissed by a commercial appraiser out-of-hand, convinced that their opinion is all that matters. The smartest, and most honest, appraisers weigh the information against the evidence they’ve gathered during their research. Ultimately, the conflicting data may lead the appraiser to change their opinion.
Those whose egos are threatened surely will not.
Despite our best effort, it remains impossible to reduce the commercial appraisal process to a mathematical certainty. Even the best method, multiple variable linear regression allows for error in the resulting equation, implying uncertainty. And the smartest appraisers know that. That’s why an opinion of value should never be written in stone until all the facts are weighed in the balance.
I like to think that most of us are flexible – but not too flexible when providing an opinion of value. But I always love to hear your feedback. Let me know what you think in the comments section below.