Automated Valuation Models Need More Reliability: The Appraisal Journal

CHICAGO (April 7, 2020) – Since automated valuation model vendors use varying methodologies, valuation professionals should use caution when relying on AVM data, according to an article published this week in The Appraisal Journal.

The Appraisal Journal is the quarterly technical and academic publication of the Appraisal Institute, the nation’s largest professional association of real estate appraisers. The materials presented in the publication represent the opinions and views of the authors and not necessarily those of the Appraisal Institute.

“Principles for Calculating AVM Performance Metrics,” by Hans R. Isakson, Ph.D., Mark D. Ecker, Ph.D., and Lee Kennedy, demonstrates that the calculation of performance metrics is not standardized and tends to overstate AVM reliability. AVMs also neglect to follow best appraisal practices in selecting comparable properties. The authors show that AVM reliability would improve if well-recognized valuation principles were implemented.

Read “Principles for Calculating AVM Performance Metrics” in the Winter 2020 issue of The Appraisal Journal.

“Long-Term Leases: Rent Reset Analysis,” by Tony Sevelka, MAI, SRA, AI-GRS, examines the process of periodic rent resetting where there is a long-term lease. The analysis in such assignments and the ultimate opinion of value depend on the property right to be valued, as indicated in the lease language. The article summarizes a sample of rent reset cases, and explores solutions to rent reset valuation challenges.

“Revisiting Market Value and Market Rent,” by David C. Lennhoff, MAI, SRA, AI-GRS, and Richard L. Parli, MAI, explores the evolution of appraisal’s fundamental terms, market value and market rent. The components of each term are discussed, and the ramifications of vague phrasing are illustrated, with revised definitions proposed.

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The Appraisal Institute is a global professional association of real estate appraisers, with over 17,000 professionals in almost 50 countries throughout the world. Its mission is to advance professionalism and ethics, global standards, methodologies, and practices through the professional development of property economics worldwide. Organized in 1932, the Appraisal Institute advocates equal opportunity and nondiscrimination in the appraisal profession and conducts its activities in accordance with applicable federal, state and local laws. Individuals of the Appraisal Institute benefit from an array of professional education and advocacy programs, and may hold the prestigious MAI, SRPA, SRA, AI-GRS and AI-RRS designations. Learn more at www.appraisalinstitute.org.

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