Lesson 9 Flashcards
What is the similarities and differences traditional appraisal companies and appraisal using automated valuation models? what are the advantages and disadvantages of each?
Both conventional appraisal and AVMs have the same roots in valuation theory and approaches to value.
AVMs simply automate the valuation process that is inherent in traditional “one of” appraisals. The
main differences relate to the power of technology in reducing the cost of appraisal, improving the
consistency, and greatly increasing the speed of the output. While AVMs offer the above advantages,
they come with some distinct limitations:
C They require a considerable amount of data to produce reliable outcomes;
C AVMs will not work well for unusual properties or situations where properties are distressed
through flooding or urban decay; and
C AVMs require in-depth understanding before they can be relied on — many appraisers do not have
the statistical training or experience to understand the appropriate application of AVMs.
What are the general approaches available for evaluation of AVMs? Based on the measures of central tenancy and dispersion reviewed in earlier lessons, what would you conclude about AVM statistical measures of accuracy?
The lending industry has shown leadership in establishing standards and benchmarks for evaluation of
AVM performance. Some key measures include:
C the “hit rate”;
C AVM percentage error;
C AVM bias, median;
C AVM value to sale price ratio; and
C standard deviation of AVM outcomes for predicted values in relation to sales prices for a sample
population of recently sold properties (e.g., properties sold that were subject to financing
approvals).
However, the problem remains that there is no generally accepted statistical methodology for evaluation
of AVMs and furthermore, limited public understanding of the reliability of AVMs. The emergence
of AVMs that evaluate other AVMs (cascading AVMs) is rapidly gaining more interest.
