Avm Risk? Avm Accuracy Above That Of Appraisals

[Joe Flacco]

The GSE grid is not a valuation model that is used my appraisers. The GSE grid is a reporting format and not a valuation model.

 

[ucbruin]

I would love to participate in a experiment testing appraisal vs AVM. GSE's should hire some skilled appraisers for a year to test which is more "accurate". It would be like Deep Blue vs Garry Kasparov. Desktop appraisal vs AVM before a listing and judged by sale price. That would be fun.

Around 1994/1995 BofA was testing an AVM (don't know if it was called that back then) system for equity loans....

The appraisal department had staff appraisers and AVM appraise the same property....
The AVM didn't follow all the guidelines that appraisers followed (example we stayed with city borders and sometimes the AVM went outside)....

But at the end of the day many AVM values were similar to human provided values....
Enough so that I could see the writing on the wall....
Less volume and lower fees....
But it seems it took a couple of decades to gain traction....

 

[J Grant]

The several different valuation options would need to be completed prior to listing and then accuracy of the different options judged by sale price. That is in my opinion the only way to test "accuracy" of several valuation options.

The problem with that is it holds sale price as the metric. If that is the case, then it should not be a valuation opinion, but rather a price opinion. Though over time, prevailing sale prices can and perhaps should be measured to competent valuations on that property and vice versa. However,the fundamental of valuation is that value and price are not always a $ for $ match,.Which makes sale prices as the "accuracy" benchmark is not 100% applicable...unless, appraiser are not tasked with value opinions and instead provide price opinions.

The word "accurate" is a conundrum for value opinions . Rather they can be measured by credible, supported credibly, useful, and reasonable. Math of course can always support is own" accuracy", since math is designed to do exactly that ( along with statistics, regression, any math based system.

The problem appraisal profession faces is not whether AVM;s are more "accurate", but whether or not their math based metric of "accuracy" will become the standard rather than the market based appraisal.

 

[Joe Flacco]

Around 1994/1995 BofA was testing an AVM (don't know if it was called that back then) system for equity loans....

The appraisal department had staff appraisers and AVM appraise the same property....
The AVM didn't follow all the guidelines that appraisers followed (example we stayed with city borders and sometimes the AVM went outside)....

But at the end of the day many AVM values were similar to human provided values....
Enough so that I could see the writing on the wall....
Less volume and lower fees....
But it seems it took a couple of decades to gain traction....

That's because appraisers following guidelines like staying within city borders is not appraisal. There is no appraisal rule like that.

They should run experiments like that again with the data available now.

 

[J Grant]

I would love to participate in a experiment testing appraisal vs AVM. GSE's should hire some skilled appraisers for a year to test which is more "accurate". It would be like Deep Blue vs Garry Kasparov. Desktop appraisal vs AVM before a listing and judged by sale price. That would be fun.

That assumes predicting prices are the goals of appraisal. Which means dropping the task of arriving at a market value opinion and changing it to arriving at a price opinion or price prediction. as purpose of assignment

 

[Joe Flacco]

The biggest problem with appraisal right now is appraisers lack of skills and not using or taking advantage of all the data available today. A lot of us still develop appraisals like the data today is the same as it was in the 90's. Following guidelines is a skills issue. That is following instructions to arrive at a value and not appraisal. What AVM's do is follow instructions or guidelines.

 

[RCA]

The several different valuation options would need to be completed prior to listing and then accuracy of the different options judged by sale price. That is in my opinion the only way to test "accuracy" of several valuation options.

"Sale Price" is like a grade the market gives a property for quality, condition, functional utility, view and other "intangible" features, after you take away the value for hard features like GLA, lot size, garage size and so on.

I believe, with a good model you can have a very accurate valuation - but the market itself is not that "efficient" or accurate. Sellers, buyers and agents are typically not that knowledgeable or judicious. Also, there can be pressures to sell fast or not sell at all. A seller can say: "Yes, I would be willing to sell if I can get at least $X" and be willing to waste everyone's time trying to sell it for that price; only to cancel in the end. Or the Seller can say: "I have to sell this house in 4 weeks for whatever price I can get." Or the agent handling probate, can do a poor job of showing and hand the house off to a friend of a friend for 15% less than what he could have sold if for. In these latter cases, the owner (or other parties as the case may be) would be judicious to get a good appraisal ... but that requires public confidence in the appraisal process, which is lacking.

Probably 20% of sales are "inaccurate" like this, too low or too high. Regression will average out these discrepancies, which most likely balance out to what other properties are bring out on the market. But a good analyst should, in any case, attempt to isolate and exclude these sale aberrations from his analysis. This procedure might be as simple as searching for "probate", "short sale" and/or "REO" in the comments - there may in fact be an MLS column for "type of sale" or, as time consuming as calling up the agents.

 

[ucbruin]

That's because appraisers following guidelines like staying within city borders is not appraisal. There is no appraisal rule like that

The biggest problem with appraisal right now is appraisers lack of skills and not using or taking advantage of all the data available today. A lot of us still develop appraisals like the data today is the same as it was in the 90's. Following guidelines is a skills issue. That is following instructions to arrive at a value and not appraisal. What AVM's do is follow instructions or guidelines.

Guidelines are bad?
Data is the same....
Access to data has changed....

As usual I'm confused....

 

[Joe Flacco]

"Sale Price" is like a grade the market gives a property for quality, condition, functional utility, view and other "intangible" features, after you take away the value for hard features like GLA, lot size, garage size and so on.

I believe, with a good model you can have a very accurate valuation - but the market itself is not that "efficient" or accurate. Sellers, buyers and agents are typically not that knowledgeable or judicious. Also, there can be pressures to sell fast or not sell at all. A seller can say: "Yes, I would be willing to sell if I can get at least $X" and be willing to waste everyone's time trying to sell it for that price; only to cancel in the end. Or the Seller can say: "I have to sell this house in 4 weeks for whatever price I can get." Or the agent handling probate, can do a poor job of showing and hand the house off to a friend of a friend for 15% less than what he could have sold if for. In these latter cases, the owner (or other parties as the case may be) would be judicious to get a good appraisal ... but that requires public confidence in the appraisal process, which is lacking.

I agree with your statement about the public confidence in the appraisal process. One of the main reasons in my opinion is that many appraisers were trained (incorrectly) to follow guidelines. More specifically the GSE guidelines. GSE guidelines are reporting requirements and not appraisal requirements but for some reason a lot of appraisers were trained to believe that they are appraisal requirements.

I think the amount of "intangible" features has decreased significantly over the last 10-20 years. A lot of sales which would have been considered outliers in the 90's are no longer outliers. These former intangible features are not always databased but available for consideration.

 

[Joe Flacco]

Guidelines are bad?
Data is the same....
Access to data has changed....

As usual I'm confused....

The guidelines were never supposed to be used as a how to appraise process. It was always if after developing the appraisal anything is outside of the guidelines then discussions about it are expected in the report. If you were trained to follow those guidelines as rules then you were trained wrong. That is not appraisal and the result is not market value. That is guideline value.

Data is not the same. Did you have several sets of 20-30 photos of majority of properties going back 10-15 years in the 90's? Data has exploded since the 90's.