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Automated Appraisal
In the not too distant future, much of real estate
appraisal will be done by automated means. The appraiser (or, for that
matter, anyone who wants to analyze the value of a property) will sit at
a computer terminal on a network and, simply by entering an address, be
able to call up all the information about a property how big the building
is, when it was built, everything the Assessor knows about it, its zoning,
the plan of the lot that is available as public information. The computer
will choose sales or leases for comparison. Expert systems available to
the user will work over the data to generate value conclusions. Automated
appraisals will be quicker, less expensive, and at times even more accurate
than appraisal done by traditional means.
Automated appraisal has already arrived. Valuation experts are familiar
with at least one method in common use: construction cost analyses available
from the Marshall Valuation Service and others, "on line." Automated
appraisal is on the minds of residential appraisers. Systems that make
use of data sorts to search large data bases of sales of single family
houses for the best "comps" and that generate value conclusions
from those were begun in the Northwest and have spread east. Commercial
appraisal is more complex. But with accurate data, transferring these same
methods to commercial property valuation is only a further step.
There are many possible methods of automated appraisal. Each follows
a basic model: Data Collection, Defining the Market, Database Search, and
Analysis of the Data. Any automated appraisal method (as well as the traditional
methods) relies on the collection of market data. For automated appraisal,
the more comprehensive the data and the more easily retrieved, the better.
As with any data reliant system, accuracy of the data is important. Next,
the model must have a way to define the market. What information should
be retrieved for analysis? What methods of analysis are appropriate? The
automated appraisal model analyzes the data using any of a variety of tools,
including multiple regression analysis of sales and GIS, or Geographic
Information Systems. When multiple models are in use, one can be used against
another as a check for accuracy.
Automated systems may be stand alone products. Or, like computer based
tools that have gone before them, they may be incorporated into appraisers'
work product. Appraisers already employ many computer assisted methods,
including discounted cash flow spreadsheets, on line data retrieval, and
word processors. Appraisers who have access to automated appraisal tools
will be able to do their work faster and better for their clients.
With technology costs coming down and data becoming more widely available,
the time for automation is ripe. Any information based industry is vulnerable
to sudden change as technology changes the way data is handled. Appraisal
has changed. Databases are under construction and valuation models in design.
Automation of commercial appraisal (as with automation in any industry)
will free us from old tasks and open new doors. It is only a matter of
time before commercial real estate appraisers find the means to deal with
the challenge of automated competitors, just as their residential counterparts
now do.
William T. Whiting, Jr.
The Reenstierna Associates Report is published as a service to the clients
of Eric Reenstierna Associates and other real estate professionals. The
views expressed are those of the articles' authors and do not necessarily
reflect those of other members of the organization. Copyright 1996. All
rights reserved.
Eric Reenstierna Associates
24 Thorndike Street
Cambridge, Massachusetts 02141
(617) 577-0096
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