Smart property for a smart nation

Last month, the Singapore Institute of Surveyors and Valuers (SISV), an association of private valuation firms, declared that automated valuation models (AVMs) are “not considered valuations (in accordance with the SISV Valuation Standards and Practice Guidelines)”.

What are AVMs? Where are they used? And why should property watchers care?

An AVM is a computer-generated valuation of a property that incorporates big data, algorithms and best practice methodologies. According to the International Association of Assessing Officers, most developed countries employ AVMs, including the United States, Canada, Sweden, Germany, Australia, New Zealand and the United Kingdom.

For more than 20 years, AVMs have been used in the US by a wide array of industries for property tax assessment, financial accounting, fraud detection, loan origination, portfolio valuations and bank audits. And in Australia, the Australian Prudential Regulation Authority officially recognises AVMs as valid valuation techniques in appropriate circumstances.

Tens of thousands of consumers, agents and valuers in Singapore are now using SRX Property’s X-Value as a starting point to price property, negotiate real estate deals, benchmark full valuations and track the performance of their homes. Indeed, the number of requests for X-Value averages well beyond 100,000 a month in a low-transaction property market.

AVMs such as X-Value offer several benefits. First, an AVM is completely transparent, as it documents the comparable transactions and methodology adjustments that went into calculating the single value. Ask your agent for a free X-Value report on your home and you will see all the supporting transactions and adjustments.

Second, an AVM is neutral. The computer does not have a vested or commercial interest in the value of your home. Sometimes, sellers do not like the results of X-Value because it is lower than they want. At other times, buyers do not like the results of X-Value because it is higher than they want. But that is the point. AVMs take emotion and self-interest out of valuing a home and allow both sides in a real estate deal to have a fact-based discussion about the price of a home rather than fighting over “he said, she said”.

Finally, the market can measure and benchmark the results of an AVM. SRX Property published the performance testing of X-Value in the white paper A Framework for an Efficient Property Market, which is available at srx.com.sg/srx-valuations.

So why should you, as a property owner or potential buyer, care about AVMs? AVMs provide a way to price, negotiate, and document the value of a property in a more transparent way than what has been previously available. The definition of an efficient property market is one where all pertinent information is available to all participants at the same time and where prices respond immediately to available information.

AVMs such as X-Value ensure that the same pricing information is available to consumers, real estate agents, valuers, banks and policymakers. This, in turn, helps homeowners understand the value of their home and protect themselves when transacting. It helps agents better advise their clients. It helps banks better understand the risk in their property portfolios. All of this leads to a smarter property market and a more stable financial system.

Government and industry players are developing Singapore into a Smart Nation. AVMs make the property market smart.

ABOUT THE AUTHOR: Jeremy Lee is Co-Founder and Chief Technology Officer of SRX Property, an information exchange formed by leading real estate agencies in Singapore to disseminate market pricing information and facilitate property listings and transactions. For more information and research on AVMs and efficient property markets, visit SRX.com.sg/SRX-valuations.