RISMedia's Real Estate Magazine

MAY 2016

Real Estate magazine is the industry's leading source for real estate news and information since 1980. Published monthly by RISMedia, Real Estate magazine offers timely and relevant real estate news to the industry's top brokers and agents.

Issue link: http://remag.rismedia.com/i/668992

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Page 19 of 118

RISMedia's REAL ESTATE May 2016 15 T echnology continues to change the landscape of modern business, and the world of real estate ap- praisal is no different. You've prob- ably had experience with websites and apps that let you fnd homes for sale in a given neighborhood and then give an estimate on the home's market value. That value is driven by an automated valuation model, or AVM. So what exactly is an AVM? AVMs have been around since the 1980s, and in the 1990s became important tools for fnancial institu- tions in their evaluation of collater- alized mortgage risk. Today, many companies use AVMs to aid in deter- mining the market value of a given property. At its base, an AVM is a mathematically-generated valuation that utilizes property information to calculate an estimated value for a subject property through a computer software program. The development of AVMs is proprietary; this means that companies do not share exactly what data they use or how much they weigh one dataset over another. AVMs can be "tuned" to the require- ments of the end user for which they are intended, which includes lend- ers, mortgage investors, servicers and consumers. This is why you will fnd a variety of AVM products online, with many different values for the same property. Where does an AVM get its information? AVMs take information about a particular house from public property records, including tax assessments and deeds. In some cases, AVMs purchase information from Multiple Listing Services (MLSs). MLS data can provide an AVM with more accurate comparable properties, detailed sales terms, and information acquired from a prior physical inspection. Can an AVM replace an appraisal? No. An important caveat to remem- ber is that an AVM is not prepared, evaluated, or reviewed by a licensed professional appraiser. AVMs do not incorporate a current visual or physi- cal observation of the interior and ex- terior of the home, quality of the con- struction or materials, the house's overall condition, or how new or func- tional the house is by current stan- dards. For example, a recently reno- vated bathroom or upgraded kitchen, which would normally affect the value of a home, would not be factored into the AVM's calculation. Therefore, an AVM should not be relied upon as an appraisal report of the current mar- ket value of a specifc home. Many REALTORS® have faced situations in which a client fnds a higher AVM value for a property than what is determined by the real es- tate agent through a comparable market analysis. This leads to con- fusion, and sometimes arguing over the listing price for certain proper- ties. Real estate agents use many pieces of information in developing their comparable market analysis, in- cluding market trends and their own expert knowledge. That being said, well-developed AVMs can be useful for quickly providing a general idea of a home's value. For example, a real estate agent can use an AVM to obtain information on the range of a neighborhood's home prices when developing a comparable market analysis. Lenders use AVMs for inter- nal quality control purposes when re- viewing appraisals, and may use an AVM in place of an appraisal when evaluating a home equity loan or a home loan refnancing—situations where an appraisal is not federally required. One such AVM tool is the Real- tors Valuation Model®, or RVM®, an AVM produced by Realtors Property Resource® (RPR), a wholly-owned subsidiary of the National Associa- tion of REALTORS® (NAR). The RVM® incorporates MLS data licensed spe- cifcally for this purpose, and is pro- vided at no charge to REALTORS® on the RPR website and mobile apps. RE For more information about the RVM® or RPR, please visit www.narrpr.com. For more information about NAR's valuation resources, visit www.realtor. org/appraisal. Sehar Siddiqi is a federal housing policy representa- tive for the National Association of REALTORS®. Automated Valuation Models: What You Should Know This column is brought to you by the NAR Real Estate Services group. by Sehar Siddiqi {Policy Matters}

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