Is Appraising an Art or a Science?
by Charlie W. Elliott, Jr., MAI, SRA

William Apgar, former commissioner of the Federal Housing Administration, was recently quoted as saying that real estate appraising was an art form, not a science.

Such a statement from such a high-ranking official has the ability to add fuel to the fire in the never-ending debate over whether appraisers are artists or scientists. Much can be said for both sides.

Before we come to a conclusion on the matter, let us examine how an appraiser actually determines the value of a property. In a broad sense, value is determined by supply and demand. It should be noted that a parcel of real estate, just like an appraisal, is not a commodity, as some would like for us to believe. Each property is unique unto itself. If for no other reason, each piece of real property is different because of its location.

Describing a certain parcel of real property is a responsibility of the appraiser. Collecting data relative to supply and demand is also an appraiser’s responsibility. Once this is done, the appraiser must organize the facts. Appraisers must use a set of methods and procedures known as the Uniform Standards of Professional Appraisal Practice or USPAP in order to guide them through the decisions that ultimately lead to values being attached to property. This suggests that science is involved.

When they do render a final opinion on the value, they do so using personal judgment once they have followed the scientific procedures required of them. While appraisers have latitude in rendering their final value opinions on property, the value is influenced primarily by the data and other information that is collected as well as their own knowledge and expertise.

In this regard, other professions involve a mixture of art and science. One example of such would be an architect. Yes, buildings are supposed to be attractive and they are expected to be appealing to the eye. In fact, a lot of times they are sold based upon how good they look. Regardless of what the building looks like, however, if it does not conform to the laws of physics, it may crumble under its own weight. The same can be said about the design of automobiles, furniture or anything else that needs to be both attractive and functional.

It is fair to say that appraisals have some elements of both art and science within them. An appraiser can only assign one market value to a property. If 10 artists each painted an oil canvas of the same home, you would, in all likelihood, wind up with 10 different looking pictures. They may have some similarities, but there would be variance in the artists’ styles and renditions. Along the same line, if 10 licensed or certified appraisers appraised the same house, following all required and ethical procedures, one would still, more than likely, get different opinions of value, although hopefully, they would all be reasonably close.

There are a number of reasons that appraisers might come up with different value opinions on property, even though there is a scientific basis behind it. One of the big problems is finding current accurate data. There is no single source for such information, and each appraiser is responsible for finding his or her own data. Probably the most used source of data for real estate appraising is the Multiple Listing Service of the local board of Realtors. In some areas there is more than one Multiple Listing Service. Some check the deed transfers at the local courthouse. Also, there are other sources of information, such as professionals exchanging data among themselves.

Since there is a variety of ways appraisers can come up with the data, there are situations where opinions of value on the same property are different because appraisers used different data sources to reach their respective conclusions.

In my opinion, appraisals of property in a homogeneous neighborhood ought to be within 2% or 3% of each other. They certainly shouldn’t be more than 5% apart. This doesn’t apply to unique properties. In other words, if the property to be appraised is an 8,000 square foot home on 50 acres of land on top of a mountain with nothing anywhere near being like it around, we would expect a broader range of values.

Appraisers are not only permitted, but they are also required to use their judgment in coming up with a final conclusion on the value of a property. And one artsy part of the profession is that in rendering their final conclusion most appraisers round off the values. Some round it off to the nearest $100 or $500, but is seems that most round it off to the nearest $1,000, particularly in properties that have higher value. Therefore, when an appraiser rounds off a final value, this accounts for some percentage of the variance.

Art also comes in when an appraiser factors in issues that can’t be measured by data, such as the condition of the property, the quality of the construction and the specific location of the property. The appraiser has guidelines that help deal with these issues, but not enough to give him specific figures regarding these issues.

Taking all of this into consideration, I can’t say that I agree with Mr. Apgar on this subject. I consider the process of real estate appraising to be both an art form a science.

Sure, we hear of instances where a given property was appraised by two or more appraisers who yielded significant value-opinion differences. This, within itself, does not mean that the process is simply an art form. While there is room for some differences of opinion among appraisers, I am from the school that subscribes to the theory that, in those cases, the best appraisal was prepared in the strictest accordance with USPAP.

Therefore, it is my opinion that the process of appraising is as much, if not more, science than art.