An AVM (Automated Valuation Model) or statistical valuation model is a technology for assessing the value of a property based on its characteristics. It is based on the same principles as a traditional real estate valuation: points of comparison. In this article, we'll look at why algorithms (AVMs) will revolutionize real estate.
The comparison points method
The method of the points of comparison consists in finding similar properties to the one to be evaluated, in its close environment. For that the expert goes most often on the sites of advertisements, in the search of 1 to 5 similar goods currently on sale. Thanks to an excel table and some calculations, the expert then gives an estimated value for the property.
The disadvantage of this method is that the ad sites only display properties that are currently for sale. If you are looking to have a property appraised in a town where there are few listings, it will be very difficult (if not impossible) to find similar properties.
To counter this, SmartBlock records the history of the Belgian market since 2019. This represents no less than 650,000 properties. Enough to find very similar properties, sold in the same street, a few months ago.
Will MVAs replace real estate experts?
MVAs are an excellent solution for most properties as they offer fast, accurate and remote estimates. This allows the user (bank, private individual or even expert!) to save precious time and to standardize his estimates.
Nevertheless, the algorithms only work well when there are enough points of comparison. In the case of an appraisal of an atypical property such as a castle or a luxurious villa, the real estate statistical models will not be able to determine a value.
The SmartValue algorithm will then suggest to the user to contact an expert to proceed to a physical evaluation. This is usually the case for properties above 1M euro.
As properties worth more than one million euros only concern less than 1% of the market, the AVM will work in 99% of the cases! We will also use a classic real estate expert in the case where the user has little information on the property (no measurements available, no information on the number of rooms, etc.).
What is the cost of a real estate MVA?
The cost of a statistical model is on average 5 to 10 times less expensive than a physical expertise (355€ on average in Belgium in 2021). This cost only takes into account the service but it is also necessary to take into account the human and logistical cost related to a physical expertise: making appointments, travel expenses, data encoding and transfer, ...
The implementation of an automated estimating solution allows for payback times of less than 1 year, which is proof of time savings and value creation for the company.
Why integrate an AVM into your processes today?
Since 2019, our company SmartBlock has built the largest real estate database in Belgium. We have several hundreds of thousands of references that allow us to evaluate any property in Belgium in a few clicks.
This ease of use drastically simplifies the evaluation process related to a credit application, an acquisition opportunity or a resale. This simplification translates into a better user experience in banks, where the customer will prefer a 100% digital solution to a physical expertise.