It’s the early 1990s. Bradley, a seasoned surveyor, is heading out to another day of house price valuations. He’s armed with his camera, clipboard and years of experience. Bradley carefully inspects the property from top to bottom, jotting down notes about the condition and features. He knows the neighbourhood well. He’s familiar with the transport links, which schools are most sought after and the bars and restaurants nearby. He returns to his office to write up his detailed report. He takes everything he’s observed about the property and everything he knows about the local area, as well as comparable sales and current market conditions to calculate a careful and considered property valuation.
In-person property valuations like this are a time-consuming art that relies heavily on expertise and judgment. Today, automated valuation models (AVMs) can do in minutes what takes surveyors like Bradley hours. At the click of a button, we can obtain a valuation in an instant, removing the need to wait for a surveyor to attend a site visit and write up a report.
An AVM is a system that estimates property values using data analysis, algorithms, statistical modelling and machine learning. Much like a surveyor, AVMs will compare properties nearby, the size of the property, the land it occupies, the neighbourhood, the location, proximity to schools, transport links, recreational facilities, on top of the property attributes such as number of bedrooms, whether it has a garage, solar panels and so on. AVMs mirror what a surveyor would do but do so by using algorithms and vast datasets including historical sales data, property attributes and market trends, to estimate the value of a property.
AVMs provide property values at remarkable speed and with great precision. The use of AVMs is gaining traction. Can we rely on machines to do the work of a skilled surveyor? Or are they best to use alongside traditional appraisals? In this blog, we will look at whether AVMs and in-person valuations can coexist in the modern world.
Hiring a professional valuer is expensive, especially when assessing multiple properties. Travel costs and inspection fees must be accounted for. As there is no physical inspection, AVMs tend to be cost-effective. This makes them ideal for lenders in lower-risk mortgage valuations as it eliminates the need for costly in-person appraisals.
In-person valuations are labour-intensive and time-consuming. They require appointments, reports being drawn up and sometimes additional inspections. This can all eat into time compared to an AVM which can bring up a valuation in seconds. This makes them ideal for accelerating decision-making for lenders and investors. When a loan book is sold, for instance, hiring a surveyor to update each individual valuation is impractical, to say the least!
“According to RICS (2020a), there are 1,415 registered residential property surveying firms in the United Kingdom. With a 10-year average of 61,720 transactions per month across the UK (Bank of England 2020), this implies an average of 43.62 valuations for residential mortgages per firm per month without the use of AVMs.”
-The future of automated real estate valuations (AVMs), University of Oxford Research
AVMs allow for valuations of large volumes, easily scaling to thousands, or even millions, of properties – something traditional appraisals simply can’t match.
In-person valuations can be prone to bias and human error. Different surveyors may apply subjective judgement when valuing a property, leading to potential inconsistencies. An AVM on the other hand will give a standardised valuation and consistent results. AVMs have the potential to reduce the risk of fraud as human appraisers could be influenced to deliberately misprice or coerced into producing a ‘preferred valuation’.
AVMs could be considered more consistent. Subjectivity is removed as the AVM applies the same methodology to all properties.
AVMs can quickly highlight any discrepancies or outliers in data, which could suggest fraudulent activity. They can also detect human error or outdated information that can lead to inaccurate pricing. AVMs can flag discrepancies between a property’s listed price and the estimated market value. AVMs can also protect buyers and lenders from overpaying for properties by highlighting pricing anomalies and detecting when a property is priced above comparable homes in the same area.
Rather than competing, AVMs and traditional valuations can be used to support one another in complementary roles in property assessments.
Many housebuilders use a standard set of property layouts, making it easy for an AVM to compare like for like. So, whilst an AVM works well for broadly similar properties, when it comes to bespoke properties, a human valuer can make subtle adjustments to allow for the unique features of a property. This professional experience and opinion are invaluable.
A surveyor assesses the property’s condition while an AVM assumes an average condition which may not reflect reality. A surveyor can identify any structural issues, renovations or features that an AVM may miss. If a property has unique characteristics or is subject to any local market nuances, AVMs may be unable to capture these. An AVM may stumble on unusual properties, high-value homes or those in niche locations. These properties often need human judgement for an accurate valuation. Furthermore, AVM accuracy relies on transactional volume, so if there has been little activity, a lack of comparable properties or historical data, or the property is in a remote location, it could be less effective than a human valuer.
“AVMs work best with widely traded, homogenous assets. Their performance degrades with increasingly heterogeneous assets or assets that are thinly traded.”
-RICs, Automated Valuation Models: A property market perspective
The surveyor also brings with them expert local market knowledge. They understand any nuances in the property market such as high demand in specific areas or unique property features that affect value. AVMs will struggle to stack up to that local expertise and years of experience. AVMs do not account for legal issues like planning restrictions, leasehold complexities or boundary disputes that can impact property value, where a surveyor would.
The accuracy of an AVM depends on the quality and breadth of the data they use. Any missing or outdated data can skew the results. This means that the quality of AVMs on the market can differ vastly depending on the available data and timeliness of it. The AVM is also subject to transactional lag in data which can be from three to six months. This means that changes to current market conditions or sudden fluctuations in fast-changing markets may not be accounted for.
Finally, the surveyor has professional indemnity insurance so if there is any negligence found in the valuation, compensation can be claimed. This lowers risk for lenders using the traditional route for valuations.
Rather than it being one or the other, there is space for traditional valuations and AVMs to work in tandem. AVMs could be used for an initial assessment and estimate, then surveyors carry out the in-depth analysis. Alternatively, an AVM could take all the low-risk standard properties, leaving surveyors to deal with older or more unique properties. In some cases, a traditional appraisal may be required to comply with regulations. In these instances, an AVM can work alongside an in-person valuation or as a starting point.
Combining the AVM data with surveyor insights will create more comprehensive valuation reports. The surveyor can add context to the valuation about the property condition, local amenities or market demand. Combining technology with human expertise is a winning formula for a more accurate, efficient and scalable solution to property valuation.
The use of AVMs is already well-established for mortgage lending. Lenders utilise AVMs for the loan process or for revaluations, to determine what the property might be worth. They also use them to get a second opinion after an in-person valuation. The use of an AVM limits risk for lenders and brings down operational costs. At times, lenders use an AVM before processing a case to check the proposed figures at the outset. This is essential for effective risk management for lenders and their insurers. They may then later pay for the human valuer.
An AVM can be used to check part-way through the mortgage term just to keep an eye on the property value. Risk is a key factor for lenders, which is why AVMs are more suited for low-risk mortgages. They are not typically used for properties with a high loan-to-value ratio, as these carry a higher risk.
An AVM is a cost-effective way to provide an indication of whether a customer who is in arrears can continue to make loan payments. Lenders can also use an AVM to future-proof themselves against risk. Let’s say their customer falls into arrears and the property needs to be repossessed. The lender will want to know if they can still make back their loan payment by selling the property.
Ultimately, AVMs allow lenders to make faster lending decisions so they can quickly accept or reject mortgage applicants. Lenders may opt for AVMs for remortgages to reduce risk while using physical inspections for property purchases. Alternatively, they might use AVMs for an initial valuation and then follow up with a physical or desktop inspection for confirmation.
AVMs help insurers by speeding up claims processing and calculating rebuild values. They also enhance risk assessment and fraud detection by identifying inconsistencies in reported property values, improving overall decision-making.
Surveyors can use AVMs as a starting point for manual valuations. An AVM can help in the initial decision as to whether a property requires an on-site valuation or whether a desktop one will suffice.
High-end retailers may want to find out the value of properties in areas when choosing the location of their new stores to improve footfall.
Understanding the value of properties allows utility providers to better understand consumption and price accordingly.
An AVM can be a valuable marketing tool for companies targeting high-value properties for instance or lenders focusing on remortgages with a loan-to-value ratio of 60% or less as a further example.
AVMs are great for monitoring the performance of a portfolio over time, ensuring that loans are priced correctly. Investors can react quickly with up-to-date knowledge of their portfolio. This is a cost-effective solution for lenders and investors to quickly assess property valuations at scale. AVMs can identify any potential risks or opportunities without paying thousands for surveyors.
AVMs can flag up properties that are undervalued and would make good investment opportunities. This analysis can be done remotely and at scale. AVMs can also identify properties in areas where prices haven’t yet caught up to rising demand such as in emerging neighbourhoods or locations undergoing revitalisation.
Investors in Mortgage-Backed Securities (MBS), where a group of mortgages have been bundled together to pay out interest, use AVMs to analyse the risk of their investments and to update the valuation of their portfolios.
House builders and developers can use an AVM to determine the value of the land held in their landbank. It can help to understand how demand for plots will be affected by property type and price. The AVM can help with lending and establish appropriate marketing pricing for plots.
The UK as a nation is obsessed with knowing how much their home is worth. Property portals embed AVMs into their websites to entice people to sell, so effectively act as a sales lead capture tool. For estate agents, it can assist with appraisals making them more accurate and thus building trust with vendors.
Council tax is typically set at a rate in proportion to the value of a property. The council will periodically carry out an audit of all their housing stock to ensure properties have had the correct council tax band applied. With nearly 30 million households in the UK, it is impractical to value each home individually. An AVM can carry out mass appraisals on this scale. This isn’t something that is done in England or Wales but some jurisdictions are employing AVMs to benchmark property taxation such as in Northern Ireland and Hong Kong.
An AVM can detect suspicious activity by analysing large datasets to identify property values or transactions that deviate from normal market trends. It can flag anomalies, such as inflated valuations or rapid resale patterns, which may indicate fraudulent activity.
AVMs can be used to estimate compensation payments due to the effect of new public works such as new motorways built or airport expansions and the impact on property valuation.
AVMs can help governments assess the financial impact of property-related investments. By providing data-driven valuations, AVMs enable more accurate decision-making when allocating public funds for infrastructure projects, social housing or land acquisitions, ensuring taxpayer money is being spent efficiently.
TwentyCi has industry-leading property data and we’ve been producing AVM models since 2017. We continually invest in our AVMs so that they meet the highest industry standards. Our AVM results speak for themselves:
What makes our AVMs so accurate is that we track 99.6% of residential property moves – the most on the market. We hold a DOMUS database, packed with over 350 property attributes, providing us with comparable variables on tap. What’s more, our addresses are 100% accurate because we use the Unique Property Reference Number (UPRN), ensuring precise identification and verification of each property. We are confident that we have one of the most accurate AVMs in the UK market, measured over a vast volume of transactions and not just a portion of the market.
AI and machine learning will only evolve and improve over time. Future AVMs will better account for market volatility, updating based on the latest sales, economic shifts and property trends. AVMs will be increasingly relied upon by the financial sector for risk assessment, fraud detection and portfolio management. AVMs are the present and the future, transforming how properties are valued across industries.
AVMs offer rapid insights for stakeholders in the property market. As data is becoming more and more digitalised, companies will want their staff to focus on higher-value work and allow AVMs to shoulder the rest of the workload.
AVMs are now more reliable than ever. With more and more access to data and innovative machine learning, they can replicate what a human valuer would do. Rather than replacing traditional valuations. AVMs complement them by offering speed, scalability and cost efficiency. The future of house price valuation isn’t a choice between the two, but a balanced approach where AVMs are used for standard properties and traditional valuations are reserved for cases requiring more scrutiny. By working together, both methods can help lenders, insurers and investors to speed up and improve their valuation process.