The IAAO Approach to AVMs: - PowerPoint Presentation

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The IAAO Approach to AVMs:

Randy Ripperger, CAEPresident International Association of Assessing Officerspresident@iaao.org

Standards & Applications Promoting Fairness & Accuracy Slide2

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The IAAO Approach to AVMs:

Randy Ripperger, CAEPresident International Association of Assessing Officerspresident@iaao.org

Standards & Applications Promoting Fairness & Accuracy Slide6

Overview & Goals

Discuss current state of automated valuation models (AVMs) in valuation and property tax industriesDemonstrate importance and relevance of IAAO’s AVM Standard to improve valuation performanceIdentify a harmonious role for AVM developers (modelers) and valuers to optimize valuations, together

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AVMs: What are they? Slide8

AVMs: What are they?

AVMs are mathematical algorithms that measure the associated relationship between certain property characteristics (e.g. size, quality, location) and a value (e.g. price, cap rate, rent) AVMs yield both value adjustments for property characteristics (e.g. a fireplace, on average, will increase the sale price of a home by €5,000) and an overall estimate of a property’s value

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Why AVMs?

As valuers, we all know there are many things that impact value. How do we determine what does or what does not affect value? And how do we capture by how much? We may grab sales comps, valuation tables – isn't that good enough?

Consider an example…

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Why are AVMs advantageous?

Have the power to isolate many simultaneous contributors to value (e.g. garage space, condition, location) and isolate each characteristic's own impact on value, either as monetary adjustments (e.g. + €5,000 for a fireplace) or percentage adjustments (e.g. 75% factor adjustment for properties in “fair” condition)  promoting defensibility – adjustments are broken out and can be explained

Incorporate many "comparable sales," resulting in increased reliability and decreased subjectivity

 results are reproducible

Valuers

can add up all of these adjustments (much like the comparable sales approach) to get a total estimated value for a subject property

Come with diagnostics. If the model isn't doing a very good job estimating value, it will tell you. You can use this as a tool to improve.

Much cheaper alternative to value many properties at once.

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AVM Limitations

Models are only as good as the data that is fed into them (garbage in = garbage out)If quality of data is suboptimal (i.e. missing or inaccurate), estimates will be inaccurateNot appropriate for rare or unique properties Slide12

Human Element  Model Optimization

Model Specification

Model Calibration

Iterative ProcessSlide13

IAAO’s AVM Standardwww.iaao.org

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IAAO’s AVM Standard

Principles and best practices to guide practitioners through AVM lifecycle that promote valuation:AccuracyEquityFairness

DefensibilitySlide15

IAAO’s AVM Standard

Specifics addressed:Data gathering, cleansing, & preparationHow to handle outliers & extreme valuesHow to build a model

Incorporating GIS & spatial models for performance enhancement

AVM maintenance and upkeep (testing, quality control, quality assurance)

And much more

Instruction is reinforced with IAAO courses, workshops, webinars, books, and other resources.Slide16

IAAO’s AVM Standard

Perhaps most importantly:Clear-cut guidelines that promote fairness and defensibility of valuationsSlide17

IAAO’s AVM Standard:Valuers

& AVMs Working Together Slide18

Implications for Valuer/AVM Harmony

Based on IAAO’s standard, how can valuers and AVMs benefit one another?Data Standardization (Reducing Subjectivity)Architectural Style Manuals

Condition & Quality Manuals

Data Completeness

Missing data?

Valuers

can offer accuracy and completeness (measuring & updating)

What should be included in models?

Variables specific to certain submarkets (e.g. distance property is to a well-performing school) can be offered by

valuers

who understand markets

Using model adjustments to update/fine-tune valuation tables, depreciation schedules, etc. Slide19

Policy Application

AVMs and valuers together optimizeAccuracy

Fairness

Defensibility

Ultimately:

Promoting public acceptance & participation in property tax

Reducing associated costs with appeals (time, labor, legal fees)

Sustaining municipal revenue sources used for the communitySlide20

Final Thoughts

AVMs are here to stay, they’re not going awayBeing competent in AVMs is an additional tool in your valuer toolboxDon’t have to be a statistician to be competent in AVM basicsSlide21

Thank you

president@iaao.org