Myers and Beck (1994) discuss two major problems that are illustrated by the graphic in Figure 1. The two squares to the left represent the current or historic real estate market. The two squares to the right represent the future rmarket. The lower squares represent the micro-market, or supply and demand in the area where the subject property is located. The upper squares represent the macro-market, which is the county, state or U.S., or anywhere other than the subject neighborhood.
Gallimore (2002) noted that when valuing real estate, appraisers rely on what are typically historic cues. Myers and Beck state that cues come from the macro market, the square at the upper-left. But feasibility, highest and best use and value of the subject are all predicated on future spatial and economic relationships within its micro market (at the lower-right). However, forecasts of demand are typically only available for the macro market, shown at the upper-right. Appraisers use historic sales from outside of the subject market to simplistically infer the value and/or future value of the subject. Myers and Beck refer to this approach as the ‘no analysis’ approach to market analysis.
Figure 1 Four squares process-The reason why appraisal cannot solve Problem 2