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Will Regression Analysis Solve Appraisal Forecasting Problems?

by Guest on May 5, 2012 General Appraisal 1672 Views

The big Appraisal Foundation "plan" is to move all appraisers to regression analysis competency over the next 5 years.  The reason behind this move, with its requirement for new education, is of course trying to get appraisers qualified to forecast market trends.  The question is, will all of this education solve the problems?  Once the educational requirements are in place and appraisers are competent to forecast market trends using statistical analysis / regression will the public trust be improved?

Appraisers, like stock market analysts, investors, financial institutions and others missed the last two real estate market failures (the Savings & Loan crisis and the recession of 2008).  My educational background includes training in statistics, and the basic regression techniques that will be taught to appraisers will indeed give them the tools to project trend lines based on historic market data.  Will these new statistical skills give appraisers the skill to forecast the next market crash?  I would say no.

I'm not trying to be negative about progress, in fact I think that appraisers should be able to use regression techniques to form value opinions, regression is in fact another less recognized method of analyzing market data.  Why not use as much market data as is availabel and predict market value using highly correlated variables and provide customers with a probability that you as an appraiser are correct within a range?

The problem is that the statistical regression analysis techniques that will be taught and used by most appraisers will effectively be "smoke and mirrors" because the trend lines presented in their appraisal reports will never predict what will really happen in a real estate market that are constantly changing.  You have to ask yourself "how well can simplistic regression predict cyclical and sometimes erratic real estate market conditions?"

So in a way I am looking forward to seeing statistical techniques finally adopted by the appraisal industry, even though they will be forced on them by regulators, but I'm less excited by their intended purpose.  There will be a lot of appraisers who will go through the motions, learn about the statistics and then the form-makers will automate the regression to meet the requirements, but its my opinion that not much of value will really being forecast.

For more appraisal information contact Glenn Rigdon, MA,MRICS, ASA a Las Vegas / Henderson Nevada appraiser via email or via his business website Horizon Village Appraisal (http://www.horizonvillageappraisal.com), or you can also click on “Contact Us” on the home page of this website.  

Article source: http://www.appraisalarticles.com/General-Appraisal-Articles/3128-Will-Regression-Analysis-Solve-Appraisal-Forecasting-Problems.html

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