Scarsdale Village Should Rescind Ryan's Voodoo Valuation

This letter was sent to Scarsdale10583 by Nickolai Baturin and Brice and Mayra Kirkendall-Rodríguez:
We attended the June 14th Scarsdale Village meeting to present our qualitative and quantitative analysis to you, as our elected officials, and to our fellow Scarsdalians. We provided evidence that there are numerous flaws in J.F. Ryan's model. Additionally, we explained that the model governance was very weak, because the Village awarded JF Ryan a contract without requiring him to compete with any other firm, no one in the Village confirmed and documented J.F. Ryan's credentials, Ryan's data and assumptions were not validated by anyone who is quantitatively qualified, no quantitative professional audited the whole process and model, and the whole process and model inputs were not made transparent to Scarsdale residents until after the revaluation had been completed. Weak model governance means that the model is neither robust nor credible. Hence, this model is invalid for the purpose for which it was designed, which was to determine the value of Scarsdalians' homes. Using this model will push many people out of Scarsdale which will adversely impact both the village and school administration's budgets.

At the village meeting, we had opportunity to hear from other citizens with impeccable quantitative expertise. For example, Neel Daniels, who has a background in statistics and who conducts independent validation of models that are used by banks, explained that when validating a model, it is important to ascertain that the outcomes are reasonable. He concurred with our analysis that Ryan's model needed to have been tested to see if it would predict the value of homes and that the Ryan model should have been validated and audited independently. Also, David Han, explained in the meeting that in his analysis he found that the 'Ryan model is calibrated with the data from July 2014 and Sept. 2015 and the assessor claims the model has a very good goodness-of-fit, which is clearly an in-sample result but the out-of-sample tells a different story. The assessor used construction grade to manipulate the assessed value to match transaction price! The model calibration is inappropriate.'

Another resident, Kai Tang, whose background is in research and development as an engineer in semiconductor development for over a decade, explained that 'Ryan's assessment doesn't pass the sanity or the smell check.' Mr. Tang is correct. The changes were massive in Ryan's revaluation in comparison to Tyler's. 1 in 5 homes had a total assed value change of over 20%. The changes in house AVs were even more extreme; 25% of house AVs went up more than 18% and another 25% went down more than 31%, while 25% of land AVs went up more than 24%.

We cannot emphasize enough that history is littered with cases where weak model governance and invalidated models have had dire financial and economic consequences. For example, flawed and invalidated residential and commercial real estate models were one of the main causes of the 2007-2008 financial crisis, which negative effects are still being felt across many parts of the US and globally. More recently, a congressional inquiry determined that one of the reasons that JPMorgan lost over $7 billion dollars in 2012-2013, in what is known as the 'Whale Scandal' was improper model usage and changing from one model to another, when derivatives traders did not like the results of the first model.

The exchange between the mayor and village attorney and the citizenry on Tuesday has left us with even more questions than when we first started reverse engineering the Ryan model on June 1st.

We pose the following questions and respectfully request a public answer, since transparency is a cornerstone of democracy.

1. Who is the village official or officials who selected JF Ryan to be the monitor for the Tyler revaluation and when?
2. What metrics were used to select Ryan to be a monitor? What does a monitor do? Who in the Village ascertained that he performed well?
3. Who decided and why that a new revaluation should be conducted?
4. What village official selected Ryan to conduct the 2016 revaluation? On what basis was the decision made and where is that documented? Did anyone ask for referrals or recommendations attesting to Ryan's expertise either as an appraiser or as a modeler and was that documented?
5. Did Ryan disclose all inputs and assumption to village officials before he embarked on the revaluation process? If so, where is this documented?
6. Thus far, we have not found evidence that J.F. Ryan has modeling qualifications. Did the village verify that Ryan has modeling expertise? If so where is that documented? Did village officials ascertain where he has used models before and who validated them? Was Scarsdale the first time he used his flawed model largely based on a drive by methodology?
7. Through our research thus far, we have found, that Ryan appraised residential and commercial properties in New Canaan, Stamford, and Sherman, Connecticut. In those appraisals, he conducted on site visits. Why did Scarsdale officials not require onsite visits be part of the Ryan model?
8. What fiduciary duty do you have to the Scarsdale citizenry in respect to conducting revaluations?
9. Have you given consideration to the very important remarks that resident Robert Berg stated at the village meeting, 'The Ryan revaluation calls into serious question whether the time has come to replace our non-partisan system of uncontested elections for Village office with something else, where voters have a choice, and where candidates have to let the voters know their positions on important issues in town – like another revaluation or historic preservation?'
10. Have you taken into account that using Ryan's flawed model will hurt the Scarsdale School Administration's capital plans and budgets, which in turn will anger even more residents?

It is important for Scarsdale village officials to establish a standard of how often it will conduct revaluations and utilizing what methodology. If village officials are going to be changing models randomly, this will perpetually be another example of weak model governance. If you change models, you will need to establish and document why a model is going to be changed, what are the differences in the model, and what are the limitations of the new model. Moreover, because you will have different methodologies, any comparison that you make of how property values have changed or any predictions of how they may change in the future would be invalid. Citizens, the village, and the Scarsdale school administration will not be able to create valid forecasts of what taxes might be to different methodologies. For the sake of Scarsdalians, the Scarsdale school administration's budget, and our village's reputation, we urge the honorable mayor and trustees to invalidate Ryan's voodoo valuation.