For most people, and property practitioners alike, desktop valuations (‘desktops’) are synonymous with computer generated valuations. Therefore the value outcome arising from the use of any of these valuation approaches is equally presumed to be same, at least it is assumed to convey the same outcome.
Across the world the use of these valuation methods has grown considerably over the last couple of years. In South Africa, in particular, since around 2008/9 the use of the computerised valuations, or desktops as some people may choose to call them, have increased in leaps and bounds.
Even with the incredible growth in usage and general acceptance of their existence by most real estate practitioners, the professional status of computerised valuations, as agreeable and reliable assessment methods, is constantly under question. For modernist desktops are a ‘new way’, but traditionalist discard their value assessment role beyond being an information tool as mere ‘mimicry’.
Therefore the aim of this article is to try and provide an explanatory description of what desktops or computerised valuations are. Respond to the specific questions on whether desktops and computerised are synonymous to each other, the approach of these methods in determination of market value and in conclusion their status as acceptable valuations methods. We are, however at least in this article, not going to deal with technical detail on quality, accuracy and reliability of values generated using these methods.
“Desktops are not suitable for every property and there is a very select criteria where banks rely on them.”
What is a computer generated valuation?
Computer generated valuation (CGV), or automated valuation model (AVM) as they are popularly known, are computer based tools that use sophisticated mathematical modelling based on analysis of publicly available property sales data to generate an estimate value of a property at a specific point in time.
Most AVMs determine a value of property by analysing, using mathematical modelling, deeds registered sales records for comparable properties, repeat sales, historical house price movements and, in certain instances, some additional user inputs is required. There is no site visit conducted with a value generated using CGV or AVM.
Because there is not any site visit involved in the AVM, is that the reason why they are synonymous and are called desktop valuations (or desktop in short)?
Are AVMs and Desktops the same?
The main practical difference between an AVM and desktop is the human involvement in generation of a property value using computerised methods.
Simplistically AVMs are not desktops, similarly desktops are not AVMs. However, the two approaches are symbiotic in providing property value. Almost all desktop valuations require some form of AVM and other online tools to complete the process of analysis for the determination of value of a property. Similarly, majority of AVMs require some additional input from user to value property.
Both these methods do not require any form of property inspection to provide a property value.
Market valuation vs. Desktop vs AVM?
The market valuation is, defined as, a process conducted by an appropriately qualified valuer, to provide an opinion of property value based on physical inspection of subject property, comparing it with recently sold properties with similar characteristics and analysis of market information.
There are many fundamental differences between computerised methods of valuation, full valuation conducted by a qualified valuer and a desktop assessment, chief amongst these is;
* involvement of a qualified valuer, and
* physical inspection of the property.
These primary differentiators are the main reasons for the majority of the disquiet about AVMs and desktops. Although there is some human involvement in both AVMs and desktops, in the majority the user is not a qualified valuer but a certain technology specialist or data analysts.
The fact that AVMs and desktops do not undertake physical inspection of the property, is a further fuels the criticism of these methods. Purchasers relying on an AVM-backed mortgage application will need to get separate advice to establish the true condition of the property.
Is property values from AVMs correct?
In general, determining market value of a property is not an exact science, more of an art.
Unlike traditional valuations, AVM outputs do not suffer from human bias and subjectivity, and automation removes fraud risk. In desktops user involvement can introduce introduce some risk of data manipulation, however, computer automation involved in the process removes the absolute reliance on human element in the valuation process and the values produced.
“AVMs and desktops are accurate in the majority of cases and are valuable when used as intended.” – Valuations Consultants Ltd
However, these methods are not relevant in some market conditions and may not be reliable for certain types and category of properties.
Which method should I choose?
AVMs and desktops are best used almost exclusively for residential properties, primarily where there is;
* sufficient market activity, that is churn of repeat sales to warrant highest quality of sales data for comparables,
* publicly available property data (e.g deeds registry), and
* predominantly homogenous properties in a market.
These methods are not relevant for properties with unique design or characteristics, new build properties and non-residential real estate, and not reliable due to poor accuracy in certain price bands. This is why they are called price estimates and not valuations.
Because they rely on large pools of comparables from a specific geographic demarcation and as such are prone to location delimitation errors, the so called ‘railway line problem’ and data sources used with misleading information due to concealed incentives in recorded sales prices and still can not account for sudden changes in current market conditions, due to three to six months’ data lag.
AVMs, desktops and technology have an important role to play and are going to have a place in the valuation of properties. This is evidence by the exponential growth in usage, acceptance of these methods as important tools in the lives of real estate practitioners and increasing emphasis that banks place on the use of these methods.
It must be acknowledged that, AVMs and desktops are not suitable for every property, and there is a very select criteria where banks rely on them in lieu of other types of valuations.
“Therefore, the use of qualified valuers will always be necessary to provide context and place value estimates into perspective.” – REINSW Real Estate Journal (2014)
Article Credit: Mashilo Pitjeng
Bio: Registered Property Valuer. Chairperson Policy and Advocacy SAIBPP. Chairperson Research Committee PSCC. IoDSA Registered Member. Facilitator EAAB CPD Training – Real Estate Environment and Property Valuations. Consults on real estate asset management, property risk solutions, real estate research and transformation.
Copy write: www.myhomecheck.co.za
Recent Comments