Qualitative Analysis Vs. Quantitative Analysis 06/16/2014 1
What s the Difference? Qualitative adjustments are purely relative (inferior, similar and superior). Quantitative adjustments use specific numbers (% or dollar amounts). 06/16/2014 2
What does Appraisal Institute say about qualitative analysis? The following information is paraphrased from The 14 th Edition of the Appraisal of Real Estate, published by the Appraisal Institute Qualitative analysis recognizes the inefficiencies of real estate markets and the difficulty in expressing adjustments with mathematical precision. It is essential therefore, that the appraiser explains the analytical process and logic applied in reconciling the value indications using qualitative analysis techniques such as: 06/16/2014 3
What does Appraisal Institute say about qualitative analysis? The following information is paraphrased from The 14 th Edition of the Appraisal of Real Estate, published by the Appraisal Institute Trend analysis Relative comparison analysis Ranking analysis 06/16/2014 4
What does Appraisal Institute say about qualitative analysis? The following information is paraphrased from The 14 th Edition of the Appraisal of Real Estate, published by the Appraisal Institute Relative comparison analysis is the study of relationships indicated by market data without recourse to quantification. Many appraisers use this technique because it reflects the imperfect nature of real estate markets. 06/16/2014 5
What does Appraisal Institute say about qualitative analysis? The following information is paraphrased from The 14 th Edition of the Appraisal of Real Estate, published by the Appraisal Institute Reliable results can usually be obtained by bracketing the subject between comparable properties that are superior and inferior to it The appraiser must search the market diligently to obtain and analyze sufficient pertinent data to bracket the value of the subject. 06/16/2014 6
What does Appraisal Institute say about quantitative analysis? The following information is paraphrased from The 14 th Edition of the Appraisal of Real Estate, published by the Appraisal Institute Several techniques are available to quantify adjustments to the sale prices of comparable properties: Paired sales or grouped data analysis Statistical analysis Cost-related adjustments (cost to cure, depreciated cost) 06/16/2014 7
What does Appraisal Institute say about quantitative analysis? The following information is paraphrased from The 14 th Edition of the Appraisal of Real Estate, published by the Appraisal Institute Capitalization of income differences Appraisers can usually find some logic to support most quantitative adjustments given the number of tools available to them. 06/16/2014 8
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Most quantitative adjustments appraisers make are simply qualitative adjustments presented as percentages. They are not directly supported by market data. We should quantify adjustments based on market data whenever possible. 06/16/2014 12
Note: percentages as dollar amounts may look very different to the lay reader Comp 2: (50% of $1.54/SF = $0.77/SF) Comp 3: (-20% of $3.69/SF = -$0.74/SF) 06/16/2014 13
No difference exists in terms of research or valuation between qualitative and quantitative analysis. The two techniques simply represent two forms of presentation. 06/16/2014 14
As appraisers, we should select the presentation style that best communicates our analysis without being misleading. The best technique may be different from one data set to the next. 06/16/2014 15
The Appraisal Institute supports the use of qualitative analysis. My informal survey results also clearly highlight that qualitative analysis is a relatively common and accepted technique. 06/16/2014 16
My Position on the Topic? No right or wrong answer. 06/16/2014 17
Qualitative vs. Quantitative Analysis Historically, I ve used qualitative analysis with fair or poor data sets. If I have a quantitative adjustments then will use them. As appraisers, we should select the presentation style and accompanying narrative which best communicates our analysis without being misleading. 06/16/2014 18
Above all, the appraiser must be careful to ensure that adjustments made to the comparable sales reflect the reactions of market participants. 06/16/2014 19