New Workflow System for Based on The R Earth Package

A new workflow for URAR appraisals based on the R/earth version of MARS (Multivariate Adaptive Regression Splines) has been added to our toolset.     

The conversion has added some improvements, such as full automation of the processing of MLS input through submission to earth(), parsing of the R::earth  output to Excel spreadsheets with adjustments, and aggregation of the adjustments to URAR fields per configuration files the user can modify to alter:

  • the fields to be analyzed,
  • the activation of two-way vs. one-way interactions,
  • the variables allowed for two-way interactions when the user chooses that option, and
  • the URAR fields to aggregate the model-specified adjustments.

The automated workflow does significantly speed up the appraisal process and improve the accuracy of the appraisal.

The accuracy improvements come from a more accurate CQA to Residual mapping (or function).  This function,   written in C++, replaces the function generation previously done through Minitab/Salford-Systems MARS.

I used R Studio to develop the new workflow system in R script and C++.  R Studio is also used for execution,  although I plan to create a front end in C# to manage workflow. The system contains about 1500 lines for R script code and 500 lines of C++ code.

The system will generate URAR adjustments for an unlimited number of sales comparables, adjusting all to within 0.00001% of their average. 

I used the variation of the Sales Comparison Approach variously called the

  • Subjective Value Containment Approach (SVCA),
  • Intangible Value Containment Approach (ICVA), or
  • Contribution Value Approach (CVA)

for this workflow.  Of these names, probably the Contribution Value Approach is the most accurate.  Although “Intangible Value Containment Approach” emphasizes the real advantage of the approach, that is, a far more precise term for estimating Market Value.  However,   a downside of this description is that the value captured through the regression residual more accurately contains the value contributions of all variables that did not enter the Stage I regression analysis.  More specifically, some of these variables may be partially tangible, although just unmeasurable for various reasons.   The term CVA or Contribution Value Approach also emphasizes that the calculation of adjustments occurs as a result of first calculating the contribution values of property features, plus a typical basis value.

Appraiser Collaboration I

Copyright (c) 2020, Pacific Vista Net, All Rights Reserved

As an independent appraiser, wouldn’t it be nice if you could easily have other appraisers or field experts, external to your company, collaborate on appraisal components where you feel you otherwise lack expertise? Certainly, within large commercial appraisal companies it is common for two to three appraisers to sign a report. In fact, if a report is written by a junior appraiser collaborating with a supervisor, it is often a legal requirement to have the report signed by the supervisor. And in many companies, an MAI is required to sign the certification on all reports that go out.

Yet, for experienced and certified appraisers who work as independent appraisers, it is difficult to collaborate with other appraisers because of communication, compensation and liability issues that arise. Appraisers simply do not know how to deal with these; in fact, a suitable infrastructure for supporting such arrangements does not exist for them.

According to USPAP Standard 2-3 (b), all contributing appraisers who sign any part of the report must sign the certification. So, to be clear, contributing appraisers do not need to sign the certification, as long as they don’t sign any part of the appraisal.

According to USPAP Standard 2-3 (c), if an appraiser’s report depends on the contributions from non-signing appraisers, then he has to take responsibility for deciding to use their contribution. And that means he must have a reasonable basis for believing they are competent and have no reason to doubt that the work is credible. So, clearly there may be some added risk to using contributing appraisers who are not willing to sign the complete report. Yet, if the contributing appraisers are far more knowledgeable and experienced in specific areas, it in fact might be compelling if not even mandatory, to seek their outside help.

The client may have additional requirements for certification, that requires contributing appraisers to sign some kind of certification that pertains only to their actual contribution and does or does not require them to approve the entire report. USPAP Standard 2-3 (d) seems to handle this, with the indication that a second supplemental certification be added to the report.

So, in conclusion, this is what I could recommend:

1. Contributing appraisers can be given the option to sign-off on the entire report. That would mean that they must keep copies of the report and workfile per USPAP.

2. Or, the signing appraiser can include a supplemental certification in the report that identifies contributing appraisers and their contribution. Further, there is nothing to prevent contractual obligations between the signing and contributing appraiser that go beyond USPAP. For example, contributing appraisers could agree to support their contribution in court should there be legal issues. Limitations on liability expressed by contributing appraisers would likely have to be transferred to the client by the signing appraiser. In the letter of engagement, you might find words similar to: “The development of the statistical model was done by Mr. John Doe, and should any liability issues arise related to the development of the statistical model, our liability in respect to this specific analysis and the decision to employ Mr. John Doe, is constrained by contractual limitations with Mr. John Doe, who has a per instance liability limitation of $10,000.” Please note that the actual wording would have to be checked with a reputable real estate attorney.

3. There are two terms an interesting term that has popped up in my research:

a. Non-Dissenting Collaborating Appraiser

b. Dissenting Collaborating Appraiser

So, it appears that a contributing appraiser is allowed to disagree with the final conclusions of the report; and thus would certainly not sign it. But the point is, this seems like good terminology and underscores the fact that a contributing appraiser does not necessarily agree with other aspects of the report, over which he or she has no control.

Thus, it appears that from the perspective of USPAP, there is nothing in the way to prevent appraisers from relying on contributions from other appraisers, so long as they have reasonable basis to believe they are competent.

However, the idea of small independent appraisers collaborating in networks to compete with large companies, should strike fear in the hearts of larger companies. Having worked in such a large company, I would venture to guess that with time, peer-to-peer networks of independent appraisers would out-compete larger companies with higher quality contributing appraisers and without the inefficiencies for bureaucratic organizations. However, at the same time, large companies often engage in outsourcing, so such collaboration might benefit them as well.

The next issue that must be dealt with is communication. An easy to use secure network must be set up that will allow information to be easily exchanged between collaborating appraisers. I have set up such networks and believe that RabbitMQ provides the best solution.

Here is a diagrammatic overview of the process:


Basic Software Toolkit for Valuation Engineers

Here is a short list of the main software tools used in my office:

  • MARS
    • Salford Systems MARS ($15,000) or
    • R-Language Earth Package (Free)

  • R-Language – Hundreds of other useful statistics, graphing and related products.
  • Quantum GIS (Free)
  • ArcGIS ($$$)
  • Chief Architect Home Designer Pro (You can always upgrade to Chief Architect Premium)  (Cost $499)
  • JetBrains 
    • Rider (C#)
    • PyCharm (Python)
    • CLion (C/C++)
    • Intellij (Java, …)
  • Microsoft Visual Studio (C#, Python, …)
  • PostgresSQL (free)
  • SQL Server (May cost)
  • Oracle MySQL (free)
  • Oracle SQL
  • SQLite (free)
  • MS Word 
  • MS Excel
  • Acrobat DC
  • Photoshop 
  • Also recommend the Adobe Creative Suite Full Package – if you can use the other Adobe products).
  • IrfanView (free) for bulk processing of photos
  • Notepad++
  • 1Password to manage passwords
  • WordPress for websites

Mortgage Lending Value (MLV) Ties Together Valuation Engineering, Prescriptive Analytics, and Value Engineering

It is often beneficial to look at how other countries handle appraisal. A number of countries in Europe, particularly Germany, require that appraisers provide a “Mortgage Lending Value” (MLV) as part of the appraisal for home loans.  This goes a good step beyond the American appraisal process of simply providing a Market Value.   RICS advises, though does not require, that Market Value (MV) also be provided alongside MLV. 

The purpose of using MLV, is to reduce the problems of fluctuating MV going into the future.  It is therefore an issue of “Prescriptive Analytics”.   First you  predict where Market Value, financing and maintenance costs  are headed sometime into the future, say 8+/- years, deduct certain predicted costs from the predicted low value of the MV, further deduct predicted foreclosure processing costs, then arrive at something close to an MLV.   The details of how exactly this is done are determined by the national laws and banking guidelines which are invariably more involved.

This exercise appears therefore to come under Predictive and Prescriptive Analytics.  I propose it also comes under Value Engineering, in that it focuses on the functional utility of the MLV, in case foreclosure occurs at a future date.


What is “Valuation Engineering”

by Bert Craytor, SRA, CGREA, Software Architect

The term “Valuation Engineering” is intended to denote the application of a broad range of techniques and tools for measurement and valuation for real estate, business and government purposes.   It may be regarded as the “Elephant in the Room”, as it incorporates several other disciplines and a broad range of training, experience and ability.

  • Note:  The term “Measurement Engineering” more aptly applies to hardware engineering problems involving very precise measurement.  Here it is used in the sense of Hubbard Decision Research’s (HDR) Applied Information Economics (AIE) framework, which involves calibration and advanced statistical techniques to measure intangibles often considered unmeasurable. 

In fact, “valuation” is just the measurement of value.  At the same time, valuation invariably depends on sundry measurements of entities, processes and characteristics.   For example, the value of a home will invariably depend on a reasonable measurement of its building area, which will include the  “Gross Living Area”,  garage and other areas.

To define the term “Valuation Engineer” let as first define the major professions that overlap with valuation engineering:


In the US, the term “appraiser” has a specific meaning that encompasses rather specific methodologies for appraising property.   To become a licensed appraiser in the United States,  minimal requirements do not include a degree in statistics, let alone science or any other discipline.    In fact, rather minimal expertise is required to provide what are considered acceptable opinions of value for many “conforming” residential properties.    If an appraiser feels that a property is too complex or difficult to handle, he simply turns down the order request.


In the UK, appraisers are appropriately referred to as “surveyors”, sometimes simply as “valuers”.   Many large Real Estate companies such as CBRE call their appraisal department “Valuation” and speak of the “valuation of assets and property rights.”

Valuation Consultant/Analyst

This position goes under various names.  Typically it does not require an appraiser license.  More importantly, it requires more expertise in statistics, programming and database access than needed for typical appraiser positions.  Also, specific experience with automated tools such as Argus may be called for.  University degrees in real estate and finance are usually requested in job announcements but are accepted from a variety of other fields, especially technical/STEM areas.

Real Estate Broker/Agent

This is an individual licensed to work as a real estate broker.  His activities are regulated by state law, just as appraiser activities.  WIth respect to valuation:  

The Bureau of Real Estate regulates licensed California brokers and can discipline its members for professional violations.

In addition, California has enacted a comprehensive statutory scheme to ensure brokerage professionals comply with applicable laws and regulations.

  • Licensed California appraisers, who render opinions of value pursuant to stringent professional standards, are subject to their own statutory regulation.
  • In California, broker opinions of value are generally not considered “appraisals.”(5) Section 11302(b) of California’s Business and Professions Code defines the term “appraisal” to explicitly exempt opinions of value for real property made by licensed real estate brokers in connection with their brokerage activities. This section reads, in relevant part:
  • ‘Appraisal’ means the act or process of developing an opinion of value for real property. The term ‘appraisal’ does not include an opinion given by a real estate licensee or engineer or land surveyor in the ordinary course of his or her business in connection with a function for which a license is required…and the opinion shall not be referred to as an appraisal.
  • Therefore, licensed real estate brokers may provide opinions of value in connection with brokerage activities. These opinions would logically encompass suggestion of appropriate pricing for the listing, purchase, or lease of a property (i.e., a fundamental activity performed by brokers). Thus, these opinions are not “appraisals.” (However, a licensed California broker who describes the valuation as an “appraisal” in this context, where he or she does not have an appraiser’s license, may violate this provision).”

The Legality of Providing Broker Price Opinions of Value in California

Finally, lets propose a definition of “Valuation Engineer”:

Valuation Engineer

The term “Valuation Engineer”, in contrast, is meant to convey an individual who:

    • May or may not be a licensed broker or appraiser.


    • Is knowledgeable in 
      • Standard appraisal methodology,  
      • Broker pricing, 
      • Advanced statistical methods and tools such as
        • Multivariate Adaptive Regression Splines,
        • R-Language,
      • Database and spreadsheet technology,
      • Measurement of residential and commercial buildings according to the ANSI and BOMA standards, including the use of CAD software for creating exact floor plans and calculating floor areas of various types, 
      • Use of ArcGIS or similar technology for visualization of geographical and demographic data,
      • Someone who is adept at measuring business intangibles and solving measurement problems related to decision making.

Emphasis on Functional Utility

I would extend this definition a bit further and emphasize, that a valuation engineer is focused on precisely defining the value he is attempting to form an opinion of,  in respect to its functional utility – an emphasis that is the center of “value engineering” (a separate discipline), as well as the functional utility of all the components of the property or entity he is forming a value of.   

For example, if the valuation engineer is appraising a home for a Fannie Mae compliant loan, the functional utility of the value he provides is that the associated appraisal process and result complies to the specific requirements of Fannie Mae, the lending institution, state law and of course USPAP.    

One of the components of this valuation is the possible value of the bathrooms in the home and their functional utility.  Analyzing this latter component may lead the engineer to group 3/4 and full bathrooms as a single component, as they both serve the main purpose of providing a space for the occupant to take care of all personal hygiene issues before leaving for work or school in the morning or attending an event in the evening.  3/4 bathrooms include a shower, full bathrooms a shower and  bath.  Both include a toilet and sink.  Thus both serve more or less the same function.  

A 1/2 bathroom will include a toilet and sink and thus serves a specific purpose, although not allow a full body wash.  A 1/4 bathroom, as a single toilet without a sink, is basically useless by itself or of minimal value.  The same can be said of a room with only a sink.  Thus we should not simply add the various bathroom counts into a single total, as two 1/2 baths do not provide the same functionality as a 3/4 or full bathroom.  

Rather than some kind of Total Bathrooms count, we must have separate counts of complete bathrooms (3/4 or full), 1/2 and 1/4 baths.  We may in fact decide to disregard the 1/4 baths as insignificant.  This latter consideration is an example of domain expertise.  And thus, we might add here, anecdotally, that a valuation engineer is assumed to have domain expertise.  In other words, he not simply a data miner or statistics analyst.

The valuation engineer has sufficient knowledge, expertise and intelligence, that he should also be able to handle assignments that involve intangibles outside of the domain of real estate.


To summarize, Valuation Engineering includes:

    • Intermediate and advanced mathematics, in particular statistics.
    • Computer programming
    • Data mining techniques
    • Database technology
    • Traditional appraisal approaches to value including the Sales Comparison Approach, the Cost Approach and the Income Approach.
    • Douglas Hubbard’s techniques for measuring business intangibles
    • Measurement engineering and methodology
    • Value Engineering, insofar as its focus is on “functional utility” and insofar as one extends Valuation Engineering to cover “Prescriptive Analytics” – a subject to be discussed in a subsequent post.