Automated Valuation Model

Automated Valuation Model (AVM) is the name given to a service that can provide property valuations using mathematical modelling combined with a database. Most AVMs calculate a property’s value at a specific point in time by analysing values of comparable properties. As well as this some look at previous surveyor valuations, historical house price movements and user inputs (i.e. number of bedrooms, home improvement spend, etc).

AVM is short for "Automated Valuation Model". Appraisers, Wall Street and Lending Institutions all use AVM technology in their analysis of residential property. An AVM is a residential Valuation Report that can be obtained in a matter of seconds. It is a technology driven report. The product of an automated valuation technology analysis, public record data, and computer decision logic combined to provide a logical calculated estimate of a probable selling price of a residential property. An AVM generally uses a combination of two types of evaluation, the running of a hedonic model and a repeat sales index. The results of each are weighed, analyzed and then reported as a final estimate of value based on a requested reasoning date. AVM technology reports are delivered over the Internet via any standard web browser. An AVM typically includes: • An indicative market value for many residential properties nationwide.• The Tax assessor's indication of value, if available.• Information on a subject property and recent sales history.• Comparable Sales analysis of like properties. Wide use of this technology was in the late 1990s was primarily by institutional investors and Wall Street to determine risk in purchasing mortgaged collateralize loans.

AVM Advantages

AVMs are increasingly used by mortgage lenders to determine what a property might be worth in order for them to lend against the valuation. The advantages of using AVMs over traditional chartered surveyors are that they save time, money and resources (e.g. there are no transport requirements, which benefits the environment) and gives more valuation choices and more profit to lenders. It is claimed that unlike traditional surveyor valuations, AVM outputs do not suffer from the same fraud risk although they can be manipulated intentionally or otherwise if property features are incorrectly entered.

AVMs are particularly useful in assessing the value of portfolios of property, but less so on an individual property.

Definitely a useful tool, but not the risk free panacea in every circumstance, a situation recognised by AVM suppliers themselves.

AVM Disadvantages

The disadvantages are that they do not take into account the property condition, as a physical inspection of the property does not occur and therefore the valuation produced assumes an average condition which may not reflect reality. Purchasers relying on an AVM backed mortgage application will need to get separate advice to establish the true condition of the property.New build property is particularly difficult to value due to the lack of comparable properties and historic data, however an advantage of AVMs is that they pull on a larger pool of comparables and as such are not prone to incorporating the claimed 'new-build premium',although it would rely on comparables from physical inspections to achieve this. Other data sources used are sometimes misleading due to concealed incentives in recorded sales prices (e.g. Land Registry). AVMs also do not not work particularly well on large blocks of flats where aspect can have a significant effect on value ie. Is it facing the river of the gasworks!

In the USA where AVM technology emerged it is extensively used alongside or to audit traditional inspection based valuations whereas in the UK the AVM is now used as valuation substitute, leaving more risk with borrows and surprisingly lenders. The cost rather than the risk seems to be the driver,particularly where lenders take a large application or valuation fee and can retain more of it as income.

The effectiveness of AVMs in falling markets remains to be established, but some lenders have current concerns regarding this.

AVM providers

These are the only UK AVM providers to have been reviewed by Fitch Ratings and Standard and Poor's. cite book |last= Mitropoulos|first= A. |coauthors= Wu, W. & Kohansky G. |title= Criteria for Automated Valuation Models in the UK. |publisher= Fitch Ratings |year= 2007

References

* Downie, M. L. & Robson G. (2007) Automated Valuation Models: an international perspective. Pp 10-11 Council of Mortgage Lenders, London, ISBN 1-905257-12-0.
* Mitropoulos, A., Wu, W. & Kohansky G. (2007)Criteria for Automated Valuation Models in the UK. Fitch Ratings.
* Bahjat-Abbas, N., Carron & A.Johnstone V. (2005) Guidelines For The Use Of Automated Valuation Models For U.K. RMBS Transactions. Standard and Poor's.

External links

ee also


Wikimedia Foundation. 2010.

Look at other dictionaries:

  • Automated Valuation Model — AVM, (acrónimo de la expresión inglesa Automated Valuation Model) es el nombre que se da internacionalmente a los modelos de valoración automática de inmuebles, mediante el uso de algoritmos matemáticos y estadísticos combinado con una base de… …   Wikipedia Español

  • Automated Valuation Model - AVM — A service that uses mathematical modeling to value properties. The majority of automated valuation models (AVMs) compare the values of similar properties at the same point in time. Many appraisers, and even Wall Street, use this type of model to… …   Investment dictionary

  • AVM — Automated Valuation Model (Business » Firms) **** Advanced Magnetics, Inc. (Business » AMEX Symbols) *** Automated Valuation Models (Business » Products) * Automatic Vehicle Monitoring (Governmental » Transportation) * Arterio Venous Malformation …   Abbreviations dictionary

  • Dodd–Frank Wall Street Reform and Consumer Protection Act — Full title An Act to promote the financial stability of the United States by improving accountability and transparency in the financial system, to end too big to fail , to protect the American taxpayer by ending bailouts, to protect consumers… …   Wikipedia

  • Zillow.com — Infobox Website name = Zillow.com caption = Screenshot Zillow.com as of November 2007 url = http://www.zillow.com/ commercial = Yes type = Real estate language = English registration = Optional owner = Rich Barton, Lloyd Frink author = Rich… …   Wikipedia

  • Obligo — Obligo.co.uk is a uk property and mortgage information website which provides information and tools to help users make better and more informed decisions with regard to mortgage and consumer finance. Obligo was launched in 2010 and key personnel… …   Wikipedia

  • Zoopla — (also Zoopla! or Zoopla.co.uk) is a property website that provides information such as sold house prices and current value estimates for all 27 million residential properties in the UK.Product featuresThe Zoopla site is a searchable directory of… …   Wikipedia

  • AVM — can be an abbreviation for the following:*Arteriovenous malformation a congenital disorder of the veins and arteries that make up the vascular system *Vision Macau (Associação Visão de Macau) a political party in Macao *AVM GmbH a German producer …   Wikipedia

  • Valoración urbanística — En los procesos de transformación urbanística es necesario valorar los bienes y derechos aportados, así como las cargas o costes soportados, de manera que el proyecto de reparcelación contemple una distribución equitativa entre los participantes …   Wikipedia Español

  • Real estate appraisal — Real estate appraisal, property valuation or land valuation is the practice of developing an opinion of the value of real property, usually its Market Value. The need for appraisals arises from the heterogeneous nature of property as an… …   Wikipedia


Share the article and excerpts

Direct link
Do a right-click on the link above
and select “Copy Link”

We are using cookies for the best presentation of our site. Continuing to use this site, you agree with this.