As the Middle East continues to champion advances in technology, we at Real Estate X believe our customers deserve to benefit from the full potential that technology promises for valuations, making them quicker, and less prone to human error and sensitive to a subjective input.
Whilst we’re focused on digital analytics and blockchain technology to assist in this process. Automated Valuation Models (AVM) are at the forefront of these technology breakthroughs. The exact meaning of an automated valuation model is currently open to interpretation as there is no universally agreed definition.
- Automation – The application of artificial intelligence and machine learning to sift through a wide variety of data sets.
- Valuation – Is an art, but it is also characterised as a science. Automation is only possible within valuation as it is intrinsically linked to the science behind the valuation. Using advances in technology to establish trends and analyse how these are interpreted by market participants.
- Models – Mathematical or statistical modelling determine the most likely conclusion using the data sets available.
In theory, using an AVM can completely remove the human element from the valuation process, reducing the risk of error. For the models to work, the data needs to be granular enough to ensure adjustments can be made to determine an opinion in-line with market.
AVMs are most effective when dealing with properties that are homogenous in nature, enabling easy adjustments based on elements like street number, office floor, or allowable Gross Floor Areas. Historically, AVMs have shown their value in markets where uniformity and stability are apparent, proving most suitable for assets with low-risk profiles that require a market approach.
Assuming an AVM can be applied to the most basic of valuation requirements, the number one constraint is that the availability of information is not transparent, reliable, or granular enough to form an opinion without the expertise of a valuer.
The increasing accessibility of public open data has paved the way for advances in digital analytics however these data sources are often known for being incomplete. This poses issues surrounding the validity and verification of information and therefore impacts confidence in the output.
The quality of AVMs varies considerably, depending on features such as the available data and sample sizes, together with the design and development of the model. Standards guiding AVMs would enable valuers, regulators and the valuation community to better distinguish between a high-quality AVM and a lesser product but even with the most sophisticated of models, they are not currently advanced enough for many types of valuation.
It is the art of valuation which allows for variations in unique features of a property, especially where volumes of evidence are relatively small or opaque. Anomalies or sudden changes in market characteristics can often not be picked up by AVMs for weeks and months, these situations need professional experience and the opinion of a valuer.
At Real Estate X, our primary focus is enhancing the commercial real estate sector, with an aim to enhance and streamline the valuation process through innovation and automation. Recognising that each market has its challenges with information constraints, we emphasise the importance of the valuer’s opinion and interpretation, adding the crucial element to the valuation process, the art. As the technology develops, it becomes essential for valuers to understand AVM outputs and be able to sanitise the results.
AVMs are valuable tools that should be embraced, leveraging technological advancements to support the commercial real estate sectors. We are however certain that the amount of reliance placed on these tools should be weighted depending on property type, valuation purpose, data availability, desired confidence level, and risk exposure. Where complex market or property characteristics are present, or in situations where transparent information is limited, AVMs should at best be utilised as an aide for valuers to make more informed decisions.
Our commitment involves embracing available technology, and collaboration alongside authorities and governing bodies, to ensure that valuations not only remain relevant and purposeful but also continue to provide added value to the industry.
