Monday, October 06, 2008

Who knew we needed a crash helmet to watch the news?

Turning on the news these days is a scary event. Regardless of what you choose to watch, if you change the channel enough times, you can hear predictions that are completely opposite. For every well-reputed speaker declaring doom and gloom, there are just as many well-reputed speakers stating that, "Its all up from here, folks!" It's enough to drive the sane to......well......insanity.

Some people tend to think that appraisers have a special knowledge. Like we can crunch a bunch of numbers, sprinkle them with some pixie dust, and KNOW what your house will be worth six months from now. While I rather like the thought of being gifted with a crystal ball, or Yoda-like powers, appraisers base everything on historical analysis. Sometimes that historical event occurred 5 years ago, sometimes 1 year ago, and sometimes only yesterday, but it has always already occurred. Hence, it is historical. Do we sometimes utilize that historical analysis to "predict" values? Yes.......but only very rarely in something called a "prospective value," and it is full of risks..........which is why it is so rarely done.

Ninety-nine percent of an appraiser's job is determining a current market value based upon sales of similar properties that have already occurred, known factual data of what it costs to build the same property, and/or lease a similar property. When the market is stable, its not such a tough job--check your data and statistics regularly, and work away. But when there are numerous external influences to value that are changing gets a whole bunch tougher. What happens when someone's down payment goes "poof" in the stock market? What happens when someone relies on income from an annuity to make their house payment, and all the sudden that annuity is worth 50% of what it was worth last month? These things ARE happening in a lightning-fast manner.

So.......I'm donning my crash helmet and forging ahead. This might just be a bump in the rollercoaster ride, or it might be a plunge to the bottom. Until my crystal ball shows up, I'm just going to keep analyzing the data as fast as it arrives. And bracing myself every time I turn on the news.

No comments: