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Automated Valuation Models - threat and opportunity

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Automated Valuation Models - threat and 
This article was written in 1998.
What is multiple regression analysis?
Before the term "AVM" became widely used, multiple regression analysis (MRA) was the most used term for computer based valuations.  
MRA has been around for many years, in many types of applications, for determining which variables are most important in determining an outcome. In valuation applications, an MRA is used to determine if square footage, lot size, age, quality, etc. affect property values, and by how much.....Appraisers can use MRA features in spreadsheet programs or statistical programs such as SPSS. 
What adjustments do AVMs make?
No commercially available AVMs let the user know the equations used in calculating values, as the equations are proprietary. Sometimes you can find out which variables are most important. A few let you see adjustments that were made on their appraiser emulation models, where adjustments are made on a grid, like on an appraisal report.
What about appraiser/user input?
Some AVMs allow user input, such as changing a square footage or inputting a time adjustment, and others don't allow any input. 
The main reason for not allowing user input is to eliminate the human element from valuation. These AVMs are seen as "pure" without human errors and bias. 

Good data is the key
Public records is the primary data source for all commercially available AVMs. This data is typically purchased by the AVM vendor. Some vendors collect part of their data, particularly if they work only a few states. Public records data is used for both the subject and the comps.
Who inspects the properties?
One of the major weaknesses in AVMs is a lack of a physical inspection of the properties.
Most lenders I have spoken with using AVMs for home equity and seconds don't have anyone drive by the properties. They see them as credit loans, with the collateral very secondary. Banking regulators, and many investors, agree. 
What's the best AVM?
No AVM is perfect. They all have data problems. The best AVM for a user gives the most accurate results with the most "hits," for their "comfort level" of acceptable risk. Some models perform better than others, but all depend on data to get reliable results. 
If you're trying to run an AVM in an area with few sales, it won't be very reliable. If the AVM database has no property characteristics for the subject property, it won't run if it doesn't allow user input.
If you're running an AVM from a vendor that also provides better data than another equivalent AVM, it will be more reliable..........
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AVM's - the easy not the hard way.pdf
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