A short decade or so ago, if you wanted to buy or sell a residential house in New Zealand you had limited choices available if you wanted to ascertain the market value.

There was always the option of seeking out your own information and analysing the data yourself. In reality, most people lack the necessary expertise to do this with any degree of accuracy. While everybody seem to have their opinions of market value, talk is cheap and mistakes can be very costly.

The usual path for a seller was to employ a Real Estate Agent and have them appraise the property. This always left the doubt � what if they got it wrong? The alternative was to employ a Registered Valuer, but many sellers were unwilling to make the investment of $450-$500 or so. As a result more than a few properties have sold below true market value. This ability to miss the market by a wide margin is often observed with Private Sales where neither Agent nor Valuer is employed.

The purchaser on the other hand generally had to accept that the asking price was in some way reflective of the market. They sometimes had the advantage that they were able to make pricing comparisons by inspecting more than one property.

Occasionally offers to buy were made subject to finance. If a Registered Valuation failed to match the value on the purchase agreement the intending purchaser could be out legal, property inspection and valuation fees. On a buoyant market, competing buyers for properties which attracted �multiple interests� were often railroaded into a situation of making an offer without having the benefit of time to research their decision. Sometimes these purchasers will have paid too much. It all seems to be �pot luck�.

In recent years some�viable alternatives have emerged. These are automated valuations. The first out of the blocks was Quotable Value�s Evaluer and now there is VCL�s �second generation HomeValuer. Both are a category of software called �AVMs� which is the acronym for Automated Valuation Model. �An AVM is a computer program designed to simulate the traditional valuation process and provide instant residential property valuations.

These computer based models are becoming much more sophisticated and as technology improves, subsequent generations become more and more accurate. Nevertheless they are not infallible.

If they are used sensibly they can be used to supplement a Real Estate Agents appraisal, or if you are a purchaser they can provide you with sufficient and timely information which will assist in your decision making.

How dependable are these automated assessments?�

AVMs can vary widely in accuracy, reliability and usefulness based upon numerous factors including data quality, real estate fundamentals and complexity of the underlying technology. They were never meant to replace traditional valuations, but rather to supplement them. Indeed both EValuer and HomeValuer state this very clearly.

To the cynic, you get what you pay for. If you pay $450-$500 for a traditional valuation where a professionally trained person inspects the property you should assume much more in terms of consistency and accuracy than you should expect from a software generated report which costs somewhere in the region of $50.

The practical advantages to both buyers and sellers using AVMs are as follows:

1. It is a low-cost way to get a ballpark price for buying or selling, so you don�t make a horrendous gaffe that you might regret forever. If the AVM generated value is substantially different from the appraised price or the asking price, then it should be enough to raise a red flag and recommend that you obtain independent professional valuation advice.
2. HomeValuer will generally provide you with a list of comparable sales in the immediate locality. If you are a buyer or seller, the most sensible way of using this information is to do your own drive-by inspections of these other homes to check on condition and to put prices in perspective.
3. The results are instant. In the event that a quick decision needs to be made, it at least provides you with some base data.
4. The values generated by the AVM are entirely independent. Results cannot be skewed by a party to a transaction exercising undue influence on a human expert.
5. The AVM providers constantly test the models against large numbers of sales to see how well these selling prices have been predicted. The providers usually state confidence levels or give an indication of statistical accuracy.

AVMs are increasingly sophisticated and inexpensive but you need to be aware; they are not infallible. AVMs should only be used to supplement traditional appraisal and valuation methods.

AVMs will give a reasonably accurate assessment most of the time (generally providers indicate the statistical probability of accuracy). However, on occasion, values derived may be wide of the mark.

This could be Watch Justin play the beginning of Kansas Dust in the Wind on his guitar below!10 pictures inside of justin-bieber-news.info running around in West Hollywood…Justin can break as many laws as he wants but he will never get deported because he is white. a problem if you rely solely on the value generated by the AVM. We would suggest that this would be less then sensible as AVMs were never designed to be used in that manner. However, if AVMs are used as a supplementary tool, these risks can be minimised.

By this we mean, if a Real Estate Agent appraises the property and the range is confirmed by the AVM, you can be reasonably certain that the value indicated is at least in the ballpark. Similarly, if you are a buyer and the AVM confirms the asking price this gives you a further level of confidence. You can also drive past the sales indicated in the report to confirm values in the locality yourself.

However, if the AVM and the appraised or asking price are substantially at odds, it suggests that seeking a second professional opinion might be sensible. In these cases we recommend that you obtain the services of a Registered Valuer.

So where are the probable sources of inaccuracy?

Part of the answer lies with the concept of value. There are numerous definitions of market value deriving from common usage and case law. It is generally taken to mean a sum freely arrived at between a willing buyer interacting with a willing seller, both prepared to deal but neither willing to overlook normal business practices. There are further assumptions that both parties are equally well informed and both are in a similar bargaining position.

The question then arises, how often do these perfect conditions exist? The answer is �very rarely�.

It is more common that one of the parties will either be better informed or will be in stronger position than the other. Therefore market value is probably better described as a possible figure along a continuum rather than a fixed point. A reasonable range can be as wide as 10%.

AVM values are totally software generated. The properties are not physically inspected. The results derived by all automated models have an underlying assumption that the dwelling is in a similar average condition as to that of the comparable sales used in the report.

Practical areas of error are summarised as follows:

1) The property record might be wrong. This may be something as simple as a data entry mistake, through to missing a major change to the record (e.g. failing to record a later alteration to the property). For example if a floor area of 200 square metres was misrecorded as being 100 square metres, the value derived by the AVM will clearly be incorrect.

2)�The property might be in a worse condition than that of the comparable sales. For example a structural element might be in need of replacement (e.g. roof, exterior cladding, plumbing, etc.), or the property might simply be in poor decorative or untidy presentation.� As the property has not been inspected such adjustments cannot be made.

3) The property might have a superior quality feature or an additional feature not possessed by the comparables. This is referred to in �valuation speak� as contributory value. Again, as the property has not been inspected, such adjustments cannot be made.

These are the worst case scenarios. They can be minimised by the application of common sense. For example, on inspection a roof needed to be replaced, an AVM supplemented by a builders estimate to repair may get you close to the real value.

The fact is that AVMs will nail the values far more often than they miss. If they used sensibly they empower both buyers in sellers in a way that was not possible a mere decade ago.

Are AVMs� suitable for Commercial or Rural property valuations?�

The simple answer is No. AVMs require a reasonable amount of homogenous (similar) data to operate successfully.� Commercial and Rural properties often have characteristics which are unique to individual properties. Therefore it is not feasible, at this time, to automate valuations for these categories of properties and still remain within consistent margins of accuracy.

When should a Seller use an AVM?�

There are many possible scenarios, but the following are representative:

1) Cold Call – You are approached directly by a potential purchaser door knocking your property. It is often difficult to obtain independent advice within the time frame set, and there may be pressure not to lose the potential opportunity to sell. Some cold-callers, particularly those who make a business out of buying and quickly reselling lower priced properties, rely on this pressure to obtain a bargain.

2) Agents Listing Price � The majority of experienced agents do a fair and reasonable job. However some agents are known �buy� the listing by initially placing an unrealistic asking price on the property with the later intention of �crunching� the vendor. Crunching is the technique of forcing the price of an unsold property down to a much lower level when the seller comes under time pressure to sell. Sometimes this may be below the fair market value which could have been realised earlier in the listing/selling cycle. An AVM can be a cost effective cross check before accepting an individual agent�s advice.

3) Private Sale � provides an independent assessment without the need to canvass the advice of a third party with a potentially competing agenda. In other words you can maintain confidentiality. However, if you intend to sell privately we always recommend that you obtain independent professional valuation advice.

When should a Buyer use an AVM?�

1) Competitive situation � A purchaser might find themselves in a situation where obtaining independent advice is desirable, but the time taken to commission this advice exposes them to the potential of being beaten to the property by a competitor. An AVM provides a reasonable instant alternative. It provides you with sufficient base data to either (a) make your own determination of value, or (b) indicate the need to get further professional advice.

2) Due diligence – When undertaking due diligence on multiple properties. An AVM provides a cost effective method of comparing the feasibility of more than one property and weeding out those that are clearly overpriced.

3) Save due diligence costs � The common route of purchasing a property is to take the advice of an agent as to the acceptable offer price to present to a vendor. However, it is important to understand that the agent has a contractual relationship with the vendor and not with the purchaser. If the offer is too high and does not stand the scrutiny of an independent Valuer when applying for finance, the sale is likely to fall through and the purchaser will lose out on significant due diligence costs (legal, home inspection and valuation fees). An AVM done at the outset will give comfort that the initial offer is realistic or has a reasonable chance of standing scrutiny.

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How do AVMs work?�

AVMs are not off the shelf software and there are only a limited number in commercial use globally. All AVM providers (including VCL) �maintain a level of secrecy around their computer code.

However, in general terms there are two possible mathematical models and two statistical models which will do the job. The devil is in the fine print. �Each model has inherent strengths and weaknesses. They are as follows:

1)�Indexing � This simply tracks price movements within a locality and applies this to a constant (usually Rating Value or most recent sale price) which it uses to anticipate the most likely selling price of the subject property.

2) Expert Systems � These models imitate the processes of a human expert. Comparable sales are selected based on similarities of physical characteristics.

3) Regression Analysis � These models utilise complex mathematical equations to define the statistical relationship between one or more property characteristic and the value of the property.

4) Neural Networks – These are designed to identify the statistical relationships between house prices and their associated physical characteristics. They are also known as NLAM (Non-Linear Adaptive Models).

Which Model does a second generation AVM such as HomeValuer use?
HomeValuer and is described as a �Cascade Model� which uses a hierarchy of models. It integrates Indexing, Expert and separate NLAM models on�a single platform. It utilizes the best aspects of each system, which gives a more consistent level of accuracy than that produced by any single model if used independently.