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[Commercial Grade] Garbage In, Garbage Out

Commercial Grade is a weekly post by John Cicero, MAI who provides commentary on issues affecting real estate appraisers, with specific focus on commercial valuation. Today John laments that clients are losing the ability to discern a good appraisal from a bad appraisal…[hint] its all in the data.

Disclosure: John is a partner of mine in our commercial real estate valuation concern Miller Cicero, LLC [1] and he is, on Thursdays, one of the smartest guys I know. …Jonathan Miller

What’s the difference between a good appraisal and a bad appraisal (or at least an appraisal that’s not so good?) I have used my Soapbox many times to rant about how it seems that clients consistently put fee over quality. It’s suddenly dawned on me that many people can’t tell the difference, including bankers that buy appraisal services daily?

I use better, in this case, to mean more reliable, with appropriate support in the written report. Many appraisal reports look the samethey have the same layout, use pretty pictures and mapsand have all sorts of theoretical equations and definitions built into the boilerplate. So, what makes one appraisal “better?”

I strongly adhere to the garbage in, garbage out theory; that is, every appraisal is based on an analysis of market data. If the appraisal bases his/her conclusions on poor quality data, then the conclusions will most likely also be flawed.

So, to the buyer of appraisal services, I offer these tips for assessing the reliability of your appraisal:

Remember, most appraisers are compensated on a fee split basis. Therefore, the sooner they get a report out, the more they will earn. This is at odds with thoroughly researching the market to ensure a reliable opinion of value.