This section is from the book "Practical Real Estate Methods For Broker, Operator & Owner", by Thirty Experts. Also available from Amazon: Practical Real Estate Methods for Broker, Operator, Owner.
The fact that leading appraisers not infrequently differ in their valuations of property by as much as 50%, raises a doubt as to the soundness of the appraisals, not only of these men, but also as a consequence, of the appraisals of men less prominently known in the profession. The demand is for valuations which shall be, in all cases, approximately exact; for the establishment of some official body of high character, so composed that it shall be qualified to make exact appraisals.
It is generally accepted that value of real estate rests on two fundamental factors, namely, income capacity, and the certainty that the income will continue. To be able to decide rightly as to whether the income capacity of a property is increasing or decreasing, or is becoming more or less secure; to analyze clearly the causes producing these changes, and to conclude correctly as to the stability of such causes, one must have intelligence supplemented by experience in real estate matters. Especially one must have the intimate knowledge concerning a property and its surroundings which only a prolonged and careful study of them can give. This special knowledge is obviously more within the reach of a man actively engaged in the real estate business in the particular section where the property lies than of anyone else.
It is undoubtedly true that an experienced real estate man is qualified in a measure to estimate values in sections not familiar to him by outward signs and general conditions, and by the aid of such records of sales and mortgages as are available (data indicating what someone else, rightly or wrongly, estimates the value of property in that neighborhood to be). But such a valuation is, at best, only a skilful guess when compared to the valuation given by a man of equal experience and integrity who has the intimate acquaintance that specializing in a particular neighborhood gives.
New York is a vast complex city of dwellings, factories and houses of commerce. Its physical restrictions necessitate its development along unique lines; its population is more diverse than that of any other city in the world. All of these elements add to the difficulty of the general appraiser, and emphasize the necessity for special knowledge. As one studies the city it falls naturally into sub-divisions that are fairly homogeneous - the financial district, the dry goods district, the wholesale grocery district, the lower East Side tenement district, and so on. In each district the requirements of the tenants are of a certain kind; the rents that can be paid have certain limits; the leases date from fixed months. Changes are constantly taking place; some obvious to all, others subtle and apparent only to the careful observer. To have an intimate knowledge of the conditions and changes in a district a real estate man must specialize in that district. This man, therefore, by the very nature of his business has greater opportunities than anyone else to acquire special knowledge of values in his district.
Besides special knowledge, character and judgment are of the highest importance. If, therefore, there were established a central body known to be composed only of men of high character, whose membership included the leading specialists in the city, it should be competent to issue appraisals that would be accepted as standard, because they would express both special knowledge and high character. In the Board of Brokers of New York City, this combination, so far as it is humanly possible, has been brought about. From the members of this Board, an Appraisal Committee has been selected with special reference to the qualifications of the different men upon it in respect to character, judgment and special knowledge of different sections. Valuations are given by the men in whose district the property to be appraised lies. Their joint opinion, checked, if necessary, by the chairman or vice-chairman of the Committee, or the whole Committee in consultation, constitutes an appraisal by the Real Estate Board of Brokers. The birth of the movement toward an appraisal committee of this character is recent, and its development necessarily slow. But, in my judgment, it represents the most reliable method available for standardizing appraisals of real estate in this city.