MATHEMATICS for Real Estate Appraisers Rev. by Stephen Traub, ASA

MATHEMATICS for Real Estate Appraisers

by Clifford Fisher, Jr. MAI
Published by Appraisal Institute, Chicago, 1996

Review by Stephen Traub, ASA

[Bookcover]

UNLIKE RECENT TOMES by the Appraisal Institute, this handbook is merely forty pages. Still, it is a useful refresher course and a concise reference booklet to re-familiarize real estate practitioners with the basic principles of math useful in the field of real estate appraisal. Although some material is generic and basic, other material is focused, providing techniques for processing data into reliable valuation conclusions.

Early civilizations developed math to serve the needs of everyday living, commerce, and science. Without it, one would have been unable to keep track of the size of one's herd. So, as settlements and possessions grew, knowing how much stuff one had, also became important. Thus, the popularity of math grew.

Practical uses of the areas of math include algebra for problem-solving; geometry for calculating areas and distances; trigonometry for studying angles and aiding in surveying; and statistics for absolute and relative comparisons.

IRV

The booklet starts with the appropriate order of operations (i.e., do I add, subtract, divide, or multiply first), eventually moving on to symbols. Symbols are useful in reducing writing. In appraising, for example, one might define the type of capitalization rate to which one is referring as R_e, where R equals the rate, and the subscript "e" defines the type of rate, in this case the equity rate. Another symbol useful in appraising is the delta (depicted as a triangle), signifying the percentage of change.

Equations also can be useful in solving for one of the unknown components of the IRV formula: where I = income, R = rate, and V = value. And, one can calculate an adjustment to a comparable for its dissimilarity to a subject property using percentages. Moreover, inequalities may be useful in establishing the upper and lower limits of value for a property: $900,000 < Market Value < $1 million.

Simpson's Rule

The book also covers basic geometry and very basic trigonometry and even touches upon Simpson's Rule (no relation to OJ) to calculate irregular areas. And of course, the six basic financial functions (including present value, future value, payments, and amortization, etc.) and how to stabilize non-level income also receive attention.

With regard to statistics, the author opines that although statistics can be useful for a variety of appraisal purposes, it has not been widely used because of its lack of widespread understanding. So, the author's scope is limited. Still, frequency distributions, measures of central tendency and variability are explained. And simple examples show the uses of mean, mode, median, variance, and standard deviation, sprinkled with a dusting of probability. Also readers are treated to a rudimentary simple linear regression used in determining adjustments for time.

Closing with the same overall simple presentation style with which the author opened, the appendix includes a "things you oughta know" section.

In summary, although the booklet is brief and rudimentary, to a large extent this is the beauty of the booklet as well.

The book above is available by writing to the: Appraisal Institute, 875 N. Michigan Ave., Chicago, IL 60611-1980 or calling 312-335-4100.

Stephen Traub, ASA, the reviewer, is chief commercial appraiser for Property Valuation Advisors, 63 Hill St., Newburyport, MA 01950. He is a certified general appraiser in NH, ME and MA.

To contact the author of this review, e-mail to: straub@shore.net or contact him at the address above, or call 978-462-4347.