Lender worried about automated property valuations

While there’s been a rise in computer modelled property valuations a lender has insisted that human input from a qualified chartered surveyor remains vital.

Chris Wright of MSP Capital says that while embracing data-driven approaches, many valuers will continue to undertake physical site inspections and apply local knowledge to ensure accuracy in their reports.

The worldwide growth in automated valuation models, or AVMs, is the focus of a recent industry consultation led by professional body the Royal Institution of Chartered Surveyors (RICS).

Wright said: “It’s something the profession is looking at and taking seriously.

“While software has long been available to help with valuations, the sheer array of information sources and vast amounts of data available mean we are now at a digitisation tipping point, with AVMs arguably the next logical step.

“Increasingly, you can take an AVM-based approach especially for property types that are similar to each other and are being widely traded. An example would be big blocks of apartments coming on the market on a buy-to-let basis.

“We should be ready and willing to embrace the positives of automated valuation, including the potential for cheaper, faster transactions. However, not all properties lend themselves to it.

“There are so many properties with nuances around physical characteristics, location, access issues and many other bespoke factors that you need human input to analyse and assess. Valuation is both an art and a science.

“The danger is that too much automation risks leading the market rather than acting as simply another tool in the armoury of surveyors, valuers, insurers and lenders looking for accurate comparisons and cross-checks.

“There is also uncertainty about how AVMs can operate in periods of sudden market volatility and shifting prices.

“And if they become self-reinforcing in their calculations – where one valuation is informed by another – you could end up with a beast of a system on which we will all be too reliant.

“The strength of any AVM is totally driven by the data used to develop and operate it.

“It only takes one glitch or incorrect calculation and you have a serious problem. A popular phrase first used in 1950s computing was ‘garbage in, garbage out’.

“As surveyors and valuers, we need to tread cautiously around AVMs and really think about this as an industry.”

MSP Capital underwrites loans after reviewing reports provided by a valuation panel with local knowledge.

RICS says that despite the growth of automation globally, there is no universally agreed definition of ‘AVM’ but in its consultation paper, the organisation states: “Automated Valuation Models use one or more mathematical techniques to provide an estimate of value of a specified property at a specified date, accompanied by a measure of confidence in the accuracy of the result, without human intervention post-initiation.”

Key factors in ensuring the quality of AVMs going forward will include factors such as ‘recency, consistency and provenance’, RICS says.

Wright added: “I worry that AVMs won’t provide that extra, vital piece of information that determines the decision to lend or not, or addresses a legal point or issue that comes up and needs to be considered.

“We will always embrace technological change, and we give AVMs a cautious welcome but the property industry has to be conscious to the fact that they are not fool proof.”

Founded in 1981, MSP Capital is a development and bridging lender, offering solutions for sums up to £20 million.

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