An AVM (Automated Valuation Model) or statistical valuation model is a technology that allows for the assessment of a property's value based on its characteristics. It is based on the same principles as a traditional real estate appraisal, namely: benchmarks. In this article, we will see why algorithms (AVM) will revolutionize real estate.
The comparison point method
The comparison point method involves finding properties similar to the one being appraised in its immediate vicinity. To do this, the appraiser most often visits classifieds websites, searching for 1 to 5 similar properties currently for sale. Using an Excel spreadsheet and a few calculations, the appraiser then provides an estimated value for the property.
The disadvantage of this method is that classifieds sites only display properties that are currently for sale. If you're 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 has been recording the history of the Belgian market since 2019. This represents no less than 650,000 properties. Enough to find very similar properties sold on the same street a few months ago.
Will AVMs replace real estate experts?
AVMs are an excellent solution for the majority of properties since they offer fast, accurate and remote estimates . This allows the user (bank, individual or even expert!) to save valuable time and standardize their estimates.
However, 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 luxury villa, statistical real estate models will not be able to determine a value.
The SmartValue algorithm will then suggest that the user contact an expert to carry out a physical evaluation . This is generally the case for goods over 1 million euros.
Since properties over one million euros only represent less than 1% of the market, the AVM will work in 99% of cases! A traditional real estate expert will also be used in cases where the user has little information about the property (no measurements available, no information on the number of bedrooms, etc.).
How much does a real estate AVM cost?
The cost of a statistical model is on average 5 to 10 times lower than that of 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 costs associated with a physical expertise: making appointments, travel expenses, encoding and transferring data, etc.
Implementing an automated estimation solution allows for return on investment times of less than 1 year, demonstrating the time saved and value created for the company.
Why integrate an AVM into your processes today?
Since 2019, our company SmartBlock has built up the largest real estate database in Belgium. With several hundred thousand references, we can evaluate any property in Belgium in just a few clicks.
This ease of use drastically simplifies the evaluation process for a credit application, acquisition, or resale opportunity. This simplification translates into a better user experience in banks, where customers will prefer a 100% digital solution to a physical appraisal.