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The Accuracy of Automated Valuation Models (AVMs)

July 5, 2017

A report for TEGoVA by Professor George Matysiak

At a time when the valuation profession is urging the European Commission to investigate a Dutch decree allowing AVMs to be used without any valuer involvement for first-time valuations of homes serving as mortgage collateral, the Matysiak report is especially relevant, because it serves to highlight a contrario just how uniquely dangerous such practice is.

A contrario, because the report is essentially not about the use of AVMs without any human intervention in the valuation process for mortgage loan collateral at initiation, as such practice doesn't exist outside of the Netherlands. It is about the limitations on the accuracy and reliability of AVMs for their accepted, mundane uses such as, typically: revaluation of credit decisions, Mark-to-Market banks' portfolio of properties in banks and mass appraisal for local taxes by government, because even for these tasks, low transparency about AVM processes, low availability of transaction data and the very European problem of even micro-geographical areas containing extremely varied types of buildings, raise problems with AVM use.

The author describes the extraordinary opacity of AVM business in Europe in which neither the AVM manufacturers nor their European trade association accept to give any information on how they control the accuracy of their products. It makes an enlightening comparison with the U.S., where the manufacturers' processes are much more transparent.

     

Professor George Matysiak

George Matysiak is a Visiting Professor at Cracow University of Economics. He has acted as consultant to a variety of organisations on forecasting and investing in commercial real estate markets. He also holds visiting positions at the School of Economics and Management (ISEG), Technical University of Lisbon and at Antwerp Management School. Before settling in Poland, he was a Professor of Real Estate Investment at the University of Reading /Henley Business School and previously Senior Research Fellow at City University/CASS Business School, London. Professor Matysiak is the author of many publications including the well known text book Real Estate Investment: A Capital Market Approach.