Assessing the accuracy of individual property values estimated by automated valuation models

Abstract

Purpose

The intent of this paper is to identify uncertainty surrounding automated valuation models (AVMs) valuations and the criteria by which a valuer could judge the accuracy of an AVM estimate of value when being assisted by such AVM as a valuation tool.

Design/methodology/approach

European law and European Valuation Standards allow valuers to use AVMs as one tool among others in reaching an estimation of Market Value, but only insofar as the valuer is able to satisfy him/herself and the client of the relevance of the AVM report, its inputs and outputs. To enable this, it thus becomes essential that AVMs be more transparent and their accuracy verified.

Findings

This paper recommends minimum reporting requirements thereby enabling an assessment of AVM valuations. At the outset, a distinction needs to be made between two groups of AVM users: banks and valuers. Banks will require considerably more information, including details of the types of models employed and “Bulk” accuracy test results.

Practical implications

This paper addresses the minimum information needed by valuers in order to gauge the usefulness and accuracy of the AVMs they propose to use as one of their valuation tools.

Originality/value

This paper provides guidance on minimum information requirements for AVMs. Indeed, it may be that the AVM vendors' industry will recognise that providing more transparency in their reports along the lines suggested would facilitate a wider and more supportive acceptance of AVMs.

Citation

Matysiak, G.A. (2023), "Assessing the accuracy of individual property values estimated by automated valuation models", Journal of Property Investment & Finance, Vol. 41 No. 3, pp. 279-289. https://doi.org/10.1108/JPIF-02-2023-0012