By Kent Lardner for Lending Central

The Wall Street Journal did an analysis of the Zillow valuation model for 1,000 home sales in early 2007. It found that “the median difference between the Zillow estimate and the actual price was 7.8 percent.”

According to The Wall Street Journal test results, when it was wrong it was very wrong, off by 25 percent for one in 10 properties. This is certainly the case here in Australia too. You could be testing a model and find the first 9 properties return amazing results, all within a few percent of the sale price, then the next one could be 20% or more off target. It’s these few large errors that have such a significant impact on the forecast standard deviation (error estimate).
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By Michaell Taylor, Principal/Co-Founder
Boxwood Means, Inc.

The United States is arguably ground zero for the global financial meltdown. We can observe here the consequences of some of the worst cases of feeble risk management and irresponsible lending practices which, in turn, have resulted in the creation of a financial hole of staggering proportions.
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Tougher market conditions in the US market have seen valuation (appraisal) standards raised by FannieMae.

In a recent announcement by FannieMae, a range of policy updates have been made including a complete sales contract being provided to the valuer, tougher analysis of local market conditions and tighter controls on comparable sales selection.
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Government departments, data resellers and end users (such as valuers) alike rely on accurate sales data. An internal government audit in NSW highlighted a wide variety of problems, including duplicated, corrupted and missing data.

The Office Of State Revenue estimated that “95% of sales data was accurate” in a report published in 1998. New initiatives such as the National Electronic Conveyancing System (NECS) may help, but data resellers and end users can add considerable value to identify and filter errors as well as speed up the process.
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Story collected exclusively for Lending Cental by Kent Lardner, offering an expert insight into the current valuation market for lenders in the US.

In troubled times for real estate housing markets, lenders must rely heavily on reliable and unbiased valuation techniques to mitigate risk in lending decisions. In the U.S., where local home prices have declined by 30% or more since the housing market peaked in 2006, the need for reliable market value estimates has grown acute. The cyclical nature of the real estate market now highlights more than ever the growing use, performance and, above all, testing of automated valuation models (AVMs).
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Back in 2000 the American Appraisal Institute stated that ‘the market needs a more rational, objective, scientific basis on which to make decisions, performed by professional individuals competent both in appraisal theory and practice and in computerized data analysis and reporting’.
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Kent Lardner from Property Data Solutions give us his unique perspective into the world of Automated Valuation Models (AVM) and what techniques the mortgage industry can use to assess their viability.

Back in 2005 a special report to Parliament was presented by the NSW Ombudsman. Titled ‘IMPROVING THE QUALITY OF LAND VALUATIONS ISSUED BY THE VALUER GENERAL’ (Google it to find the report), it offers lenders currently investigating AVMs a detailed insight into methods for testing.

The report indicated “that only 31% of sales on average met the strict 5% margin of error standard across the sample districts and only 66% of sales across these 43 districts were within the 15% acceptable margin of error.” This is a good benchmark for your own AVM testing. Full Story

After analysing several automated property valuation websites, Consumer Group Choice has raised questions about their accuracy.

Although e-valuations can provide useful information and guidelines, Choice found that different websites can give a wide range of values on the same property and can differ significantly when compared to licensed valuations and actual sale prices.

“Without third-party verification of their price estimates, or a comparison against real valuations and sale prices, choosing a website is a bit of a lottery,” Choice said. “So use the websites to gather information and aid your research, but don’t expect a number you can rely on.”

In researching the websites offering automated valuations, Choice looked at property reports bought by a couple preparing to bid for a house in Sydney, and compared them with an independent valuation.
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A recent LIXI Valuers Forum held in Sydney last month attracted nearly 40 people. Not only was the number of participants impressive, but the fact that the meeting consisted of a wide variety of stakeholders including lenders, LMI’s, valuers, the API as well as technology and data providers.

One of the key items on the agenda was initiated by an earlier conference where lenders stated they wanted to see standards expanded to meet industry needs, including straight-through-processing and quality control checks.

In the risky and often politically charged world of standards committees, I think LIXI has done a great job since its inception. It quickly delivered a working solution for both loans and valuations, and has laid a good platform for the next round of developments.

The Appraisal Institute – American experience
A recent story from Scott Kinnaird of www.appraisalpress.com highlighted a number of issues the US industry has with the XML standard for appraisals becoming proprietary.

“Sometimes, companies put proprietary standards - non-open standards that they control - on top of open Full Story