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First statistical standards for automated valuation models published

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  • 29/09/2017
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First statistical standards for automated valuation models published
Standards to govern the way automated valuation models (AVMs) are used to calculate the value of a residential property have been unveiled for the first time.

Data-based models for calculating the market value of residential property are becoming increasingly common with lenders across the UK (and much of Europe), particularly for remortgage applications.

However, there has been a lack of standardisation in how market participants are utilising these different valuation methods.

As a result, the European AVM Alliance (EAA) has published the first set of standards to direct the industry.

The standards set out the primary types of statistical valuation and review their suitability for different uses and how lenders, investors and regulators should evaluate the resulting performance of each approach.

They focus on principles, definitions and minimum requirements for statistical valuation methods across Europe and include guidance about selecting the appropriate method.

 

Indexation falls short

Earlier this month, E.surv director Richard Sexton explained the process behind valuations and how technology is influencing the profession.

Hometrack director of financial services and capital markets Piero Bassu welcomed the standards as good news for AVM providers, mortgage lenders and borrowers.

“The fact is that indexation falls short of what is required for accurate valuations in this day and age,” he said.

“These new standards turn more than 15 years’ of successful AVM use in the mortgage industry into a set of do’s and don’ts that guide how AVMs can be used properly to improve customer experience and enhance risk management procedures.

“With changes like IFRS9 coming up in 2018, having an accurate and up-to-date view of collateral will be even more crucial for lenders and EAA certification will highlight the best AVM providers across Europe ensuring that standards remain high,” he added.

The EAA noted that the standards will be monitored, reviewed and updated regularly, based on stakeholder feedback and market needs.

EAA director general Dr. Andreas Bücker said the standards would move towards greater accuracy and transparency for lenders, investors and regulators in calculating property values.

“The EAA has recognised the need to publish these standards to improve the understanding of statistical valuation methods, their suitability for specific requirements and how users can assess performance and accuracy of the resulting valuation outputs,” he said.

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