The Duality of Trust

I was reading a comment the other day someone else had filed with the Appraisal Standards Board regarding proposed Advisory Opinion 41. It was well written, thoughtful, and raised concerns about the depth to which an appraiser must understand the tools and technologies that feed into the development and reporting of – hopefully – credible assignment results.

(For the record, I am generally positive on proposed AO 41 as written. You can read my comment here.)

What struck me as I read the comment was a thought that had escaped me previously, an idea so simple yet so profound that I had to write it down and come back to it in this format.

Trust in valuation is given and earned differently based on what valuation solution gets used.

Put differently, we expect appraisers completing “traditional” appraisals to fulfill numerous expectations in how they complete an assignment to earn our trust in the assignment results that are delivered. We expect competence, ethics, kept records, nondiscrimination, a clear scope of work, and adherence to the relevant development and reporting standard for the type of asset being valued. These are significant burdens, and failure to fulfill any single element can result in consequences for appraisers and users of appraisal services alike – if not the whole of public trust.

By comparison, alternatives to and outright waivers of appraisals seem to benefit from a starting point of initial mistrust with a bar to acceptance that is lower than what an appraiser must overcome. Once we see that nothing bad has happened with these departures from established norms, we take them at face value as being trustworthy – not constantly validating that trust in the same way the appraisal process requires of appraisers.

Maybe that higher bar for appraisers is right – after all, the alternatives often work best in the most homogeneous, low risk situations. Once layers of complexity or risk are evident, the use case for relying on a technological solution falls short and we instead pivot to trusting in learned human judgment. And judgment is inherently fallible; USPAP reminds us that “perfection is impossible to attain,” but striving for that mountaintop is what underpins the trustworthiness of appraisals. We know the result will be imperfect, but we instead judge the adherence to process as it informs us of our willingness to believe the opinion that is shared.

I don’t think lower bars to acceptance to alternatives is wrong, or bad – it simply underscores the fact that use case informs how much trust is required for a collateral valuation (or its absence) to inform a decision, lending or otherwise. Lower risk can rely on lower trust, since the contours of the subject property and the purpose of the valuation help us understand the degree of risk tolerance that can be accepted.

In short, the question of how much trust is needed in a transaction should best inform what valuation solution gets utilized. When in doubt, high trust – and the way in which the appraisal process creates that trust each time – is best practice.

Revolutionary? No. But this new perspective has helped me think more clearly in conversations regarding appraisals and the myriad alternatives on offer – not as a combative either/or, but more a duality around the amount of trust required as part of the broader use case.