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# Quality Condition Adjusted Mean Methodology

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A comparative valuation tool for the personal property appraisers. As published in the Journal of Advanced Appraisal Studies - 2008

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### Quality Condition Adjusted Mean Methodology

1. 1. Quality Condition Adjusted Mean Methodology: A Comparative Valuation Tool for the Appraiser by Todd W. Sigety, ISA CAPP Introduction This paper explores the process of using a quality/condition adjusted mean methodology (Q-CAMM) to determine value of a subject property. A quality/condition adjusted mean regulates comparable values based upon condition level and quality points, and arrives at a final value conclusion relative to the subject property’s intrinsic features and state of preservation. Q-CAMM continues to rely upon the personal opinion and experience of the appraiser while introducing additional mathematical components to basic statistical averaging. Relative to the subject property, the appraiser determines and selects sample comparables from an appropriate market level population and assigns quantified ratings for subjective quality attributes and condition levels. To use Q-CAMM correctly and effectively, the appraiser must have sufficient knowl- edge and points of reference to assign the subjective factor data points within the selected data set. A quality/condition adjusted mean appraisal methodology should re- duce the amount of guesswork and randomness in arriving at final value conclu- sions for singular items of decorative art. The final value conclusion of the subject property will be directly correlated to relative comparative values, as determined by appraiser ranked quality and condition. Before delving into the mathematical valuation model, a discussion on measures of central tendencies, market levels, quality characteristic, and condition is necessary. Measures of Central Tendencies Personal property appraisers typically use a combination of methods and techniques when arriving at value conclusions. Depending upon circumstances, such as number of comparables located, similarity of comparables, quality characteristics, and property condition, different appraisal techniques and
2. 2. methods can be employed in developing value conclusions. Some appraisers use mathematical or statistical formulas, such as measures of central tendencies, including the mean and the mode when appropriate. Appraisers may also rely upon connoisseurship and experience in determining final value conclusions, intuitively adjusting values based upon research and comparable samples located and deemed suitable. Using a mode appraisal methodology is one of the more statistically sig- nificant methods in determining credible value conclusions. This holds true so long as sufficient parallel items are located within a sample population having similar age, utility, quality, and condition characteristics. Valuation using a mode methodology works well on objects such as household appliances and relatively new items of property. With this type of property a large sampling of nearly exact items can typically be located in sufficiently large numbers and in similar condition. In these instances a mode methodology functions properly from a statistical point of view, and perhaps more importantly, removes much opinion and guesswork in determining a suitable and objective value conclusion. USPAP (2008) Standards Rule 7-6 states that “in developing a personal property ap- praisal, an appraiser must reconcile the quality and quantity of data available and analyzed within the approaches used and reconcile the applicability and rele- vance of the approaches, methods and techniques used to arrive at the value conclusions.”¹ In short, the data analysis and method of determining value must be relevant and appropriate for the type of property being appraised. Methods of central tendencies do not work nearly as effectively as valua- tion tools for singular items, such as antique decorative arts. In appraising singular items, the subject property and similar comparable items are assessed and evaluated on their own individual aesthetic qualities, provenance, age, rarity, condition, and utility. When dealing with subjective evaluations of singular form decorative arts, there is typically room for additional variables and reinterpreta- tion based upon appraiser background, experience, prejudices, connoisseurship and emerging scholarship. Depending upon the uniqueness of the subject property and scope of work issues, exact or suitably close comparable samples may not exist or may not be available for comparison in sufficient quantities for significant statistical 34 Todd W. Sigety
3. 3. averaging. In these instances markets are researched and similar or parallel property is located for comparison. Values are then typically adjusted accord- ingly for differences in design aesthetics and condition in determining final opinions and value conclusions. In situations where a central tendency method- ology is deemed inappropriate, the appraiser, based upon comparables and data points found, may use subjective experience and empirical knowledge in adjust- ing value. The appraiser may intuitively adjust value based upon condition levels, rarity, and design aesthetics relative to the subject property. This is a system that typically works well yet may be considered somewhat arbitrary and random especially to the uninformed. If final value conclusions are not repeat- able or are lacking in supporting documentation an intuitive method in arriving at value can become problematic. This is especially relevant in an appraisal review situation where finial valuation is scrutinized, leaving the appraiser’s opinion open to challenge and potential legal exposure. When researching comparable decorative art values the appraiser fre- quently reviews and researches a large statistical population of similar items, then selects appropriate samples to use as comparables in valuing the subject property. Sample or comparable property selection is not an arbitrary process. The appraiser must select sample comparables from a statistical population of possibilities which are similar in quality and condition in addition to selecting the appropriate market level for comparison to the subject property. In statisti- cal terms, the population should have a normal distribution (bell curve). The selected sample items should fall near the middle/mean of the data range, avoiding outliers or extreme occurrences within the population which might significantly alter the final value conclusion of the subject property. Compara- bles should be selected within the appropriate market with items of similar utility, quality, and condition. As an example, an appraiser seeking a valuation on an inlaid American Federal mahogany sideboard should select similar inlaid American mahogany sideboards of the Federal period with related design aesthetics, condition and provenance as comparables. For the proper selection process to occur the samples can not be randomly chosen; the appraiser must rely on his experience and expertise to select relevant samples from the statisti- cal population as comparative examples to the subject property. Quality Condition Adjusted Mean Methodology 35
4. 4. Simple mathematical formulations such as averaging have a tendency to foil the appraiser by not taking into account subjective quality and condition differences of comparative property relative to stated value. These factors greatly impact comparative value and should be recognized within any appraisal related mathematical model or statistical formulation. Fundamental measures of central tendencies such as the mean and mode, when calculated by an appraiser typically are used without regard to any subjective weighting, and are specifically limited to the data set of selected comparable values. Since exact comparables are typically not available within many antique decorative art property special- ties, a defendable appraisal methodology should be used to document and reconcile quality and condition relative to the comparative value data points. Q- Camm was developed as an accurate, repeatable and defendable appraisal methodology. Markets When selecting comparable property the appraiser must be mindful of the multiple levels of trade available for sample selection, including retail, wholesale, and liquidation markets and various sub-divisions within each market model. When comparing property, it is important to stay within the same market level and also understand that markets are imperfect and are not always balanced. Imperfect markets can result in similar property with related quality, condition, age, desirability and provenance being valued differently. According to USPAP (2008) section 7-3, comments, “The appraiser must recognize that there are distinct levels of trade (measurable marketplaces) and each may generate its own data. For example, a property may have a different value at a wholesale level of trade, a retail level of trade, or under various auction condi- tions. Therefore, the appraiser must analyze the subject property within the correct market context.”² On October 3, 2007 Christies in New York sold an 18th century Phila- delphia pie crust tilt top tea table for the record sum of \$6,761,000.00 including buyer’s premium. The table is thought to have been carved by the “Garvan Carver” of Philadelphia. The previous auction record for a pie crust tilt top table was \$2,442,500.00, and the Christie’s table also exceeded the previous high of 36 Todd W. Sigety