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The Latest Automated Valuation Model (AVM) Claims 2019

by Administrator on Jul 26, 2019 Automated Valuation Models AVM 201 Views

Well I knew that sooner or later I would see the results of some AVM claiming a very high degree of confidence that it had estimated the market value of my home, and today someone actually did.  My mortgage company sent me a home value estimate from www.Xome.com that claimed a 94% confidence that they have correctly estimated my home correctly.

I have been a broker and a certified general appraiser for 40 years and I would be hesitant to make that claim, yet because www.Xome.com is using “investment-grade” analytics, whatever that is, they think that they can. 

If you look at the model’s output and read a little more you will see that the estimate is based on data that is already a month old.  Isn’t it funny that as an appraiser I won’t even use data that’s that old unless I have no other choice?  Financial institutions don’t want you to miss the last 3 sales that were in the last 30 days, but there is no reign of AVM’s and their claims. 

If you have been a broker or an appraiser with experience in the single-family market you know that there is a lot going on related to home value that isn’t obvious.  Many people can tell you about the sale of a property or two, they may even be model-matches to the one they own, that happened down the street in their subdivision.  But if you ask them about the size of the properties they usually don’t know and most people haven’t been inside the sales they know about.

If you search through the sales data you may discover that the $ 400,000 sale that someone is talking about, or that has been used in your AVM analysis, may have in fact been made with a seller contribution of $ 10,000.  They (seller contributions) happen a lot more often than you might imagine, but the sales price says $ 400,000 not $ 390,000 and AVM’s and uninformed third-parties don’t pick up on that information.  It’s effectively a 2.5% price reduction.

Another generalization that AVM’s don’t talk about is the fact that not all homes have the same interior finish.  If you put in $ 12,000 worth of shutters, $ 20,000 worth of upgraded flooring, paid $ 15,000 to remodel a bathroom or put in a pool heater or waterfall for $ 15,000, how would they know?  They haven’t been inside of your home.  The fact of the matter is that the more changes that you have made to your home the more likely it is that they are off more than their “confidence” percentage indicates.

The way the owners of AVM’s think they have the ultimate “out” or guarantee regarding value is that many of them rely on appraisal reports.   So appraisers do the difficult on the ground work and the AVM “uses” it and claims that results are based on appraisals.  So a critic like me can be told, “our AVM is based on data supplied by someone like you.”  It’s a bogus claim, appraisers produce opinions based on the best available data but most of us would not be arrogant enough to make claims about how perfect our opinions are.  AVM’s should have to statistically prove the “confidence percentage” that they are claiming.  If they did you wouldn’t see many near 90%.

One of the biggest problems with AVM’s is that they are untested in a large real estate market swings and likely useless if we have any kind of financial crisis.  If you think about the fact that we have had maybe 10 of those over the last 40 years (look it up on Wikipedia) you can imagine just how useless an AVM is if almost anything external influences the real property market.  They don’t build that in do they?  No, because no one knows what will happen when we get to the next crisis.  It will happen, then your AVM will be absolutely useless.  Do you think our $ 22 Trillion dollar debt, a rocket sled to hell, might cause the next crisis?  Who knows, there are so many possibilities I can’t even guess what will set off the next one.

Home prices have a lot to do with people, buyers, sellers, brokers and mortgage lenders.  I see homes that appraise at $ 400,000 sell for 10% to 20% less simply because the owner won’t maintain his property.  It’s easier to let a property go than it is to pay for things as they break, and even if you do a good job of maintaining things have to be replaced and updated.  AVM’s can see into homes, they are just guessing so again, how can they make those 95% confidence claims?

There needs to be some AVM oversight, the fact of the matter is that AVM claims are getting out of control.  Soon they will be saying that AVM’s have 99% or 100% accuracy.  They have the perfect situation, no proof in advertising needs to currently be provided.  It’s an affront to appraisers who know just how flawed the models are.  Why shouldn’t they have to periodically prove their claims?  If they can predict home value, even for a short period at 95% they should have to prove it.

Another important AVM issue is the fact that even the absolute best models can be easily manipulated.  Appraiser influence is a serious problem in the industry, I can’t tell you how many times someone has tried to influence my opinion, but once you get rid of appraisers the pressure for high or low values doesn’t just stop, it just transfers to those running the AVM’s that are being relied upon, and then of course you often get back to the banks, they often are or will be the AVM owners.

For more appraisal information contact Glenn J. Rigdon MA, MRICS, IFAS, ASA who is a Las Vegas / Henderson Nevada based broker and appraiser who can be contacted via email or via his business website known as Appraiser Las Vegas  (http://www.appraiserlasvegas.com), or http://www.horizonvillageappraisal.com, or you can also click on “Contact Us” on the home page of this website or visit my public profile at LinkedIn at http://www.linkedin.com/pub/glenn-rigdon-ma-mrics-asa/1a/30b/879/

Article source: http://www.appraisalarticles.com/Automated-Valuation-Models-AVM/4747-The-Latest-Automated-Valuation-Model-AVM-Claims-2019.html

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