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Automated Valuation Models

Automated Valuation Models

What is the most essential thing to consider if you want to invest your money in the real estate industry? Is it the location, how old the building is, or have many people owned it previously? While each of these factors will probably hold some importance to you, one universal thing always matters the most- the price.

You probably have a rough idea of everything that influences the market value of a property. However, it is also possible to get an accurate and mathematical calculation of this value. This article will go through automation valuation models and how they are calculated.  

Automated Valuation Model

To put it simply, an AVM or Automated Valuation Model refers to a service that utilizes mathematical calculations to provide the market value of a property. It reduces the requirement to personally scrutinize and inspect each property’s market value as it was done back then.

Real estate involves a large chunk of data. So, an Automated Valuation Model allows you to make faster decisions and better evaluate each property. AVM utilizes all kinds of data, including property condition and age, and creates a report in a matter of seconds.

Now, we will discuss what Automated Valuation Models consider when calculating property value.

Types of AVMs

Currently, there are around four types of Automated Valuation Models utilized in the real estate industry. These include price index, combined, hedonic, and tax assessor valuation.

AVM Limitations

As you have probably guessed, despite the technological advancements of the recent decades, there is still a decent amount of things AI or software cannot do. An Automated Valuation Model cannot take certain things into account that would otherwise be obvious to human valuators.

For example, an Automated Valuation Model is likely to price real estate poorly or highly depending on its previous ownership and location. Still, it will not be aware of possible nuances like the poor quality materials utilized in the interior design. 

To put it into other words, what appears good on the screen or paper will not always look good to the eye.

However, comprehending aesthetics is not the only domain where an Automated Valuation Model might fail. An automated system might not be as effective in reflecting the value of a property if it cannot perform comparative analysis- in the case that a property hasn’t been bought before.

Similarly, an Automated Valuation Model will not successfully reflect the correct price if a real estate is unique. So, there will be nothing similar to it that can be found in the records. In such cases, a professional human valuator will be required to pay a visit or investigate the property to evaluate its custom pricing.

Conclusion

Automated Valuation Models are a valuable piece of technology that has changed a wide range of industries apart from those directly connected to real estate. Considering the cost optimization and time savings it has led to, it is expected that Automated Valuation Models will continue to be indispensable for years.

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Written by Austin Proctor 
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