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Description
automated valuation models (AVMs) are often viewed with suspicion in the appraisal community. However, like iPods, cell phones and the Internet, AVMs are a technological development that won't go away. Although misuse of these valuation programs can be dangerous, appraisers need to consider AVMs as useful tools and learn how to assess and interact with them.
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AVMs were first developed in the 1970s for internal use by the banking and lending industries. They are programmed to analyze real estate data--demographics, property characteristics, sales prices, price trends--to determine specific property values. Accordingly, AVMs rely on the quality of the data that propel them. Their design ensures mean or median results which, as Ron Geer, ARA, chief operating officer of Portland, Maine-based Pietroski & Co., notes, are not always appropriate to the user's requirements. Jesse B. Vance, Jr., MAI, SRA, president of Plantation, Fla.-based Vance Real Estate Service, points out that "AVMs are generally similar to the appraiser's 'raw, unverified' comparable sale data. For assignments that rely on a high degree of confidence, they are but a beginning point requiring further investigation."
There have been advances in AVM technology, which include artificial intelligence, expert systems and neural networks. However, some AVMs haven't changed at all. Mark Linne, MAI, director of strategic development for ValueScape in Lakewood, Colo., and co-author of the forthcoming book Visual Valuation, observes that although there are various fads in the technology--he calls it the "flavor of the month" syndrome--most AVMs still rely heavily on simple regression analysis. Linne also notes that appraisers were not part of the original development process for most AVMs. Although some AVMs have been designed by or with input from appraisers, the technology has been developed primarily from the lender's perspective.
AVMs and AAVMs
AVMs are programs run online so that data can be updated. Some allow users to change the property characteristics, but the model actually does the work and the equations used to calculate values are proprietary knowledge. Ann O'Rourke, MAI, SRA, editor of Appraisal Today newsletter, suggests that the free AVM Zillow, which estimates home values based on publicly available comparables, is a good place to start in comprehending what these tools do. At Zillow.com, enter a few addresses to get an idea of how this model works in a residential property area, the Alameda, Calif.-based appraiser said. On a more advanced level, some providers offer cascades of AVMs the user can test. For example, CoreLogic... |
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