Page 18 - FINAL 103018

Banker-Appraiser Task Force Concerning Appraisal Issues Page 18.

being fairly reliable to totally unreliable, AVMs alone should not be viewed as the only source for
valuation conclusions. Additionally, quality control testing is critical to the reliability of AVMs as
with any evaluation or valuation product.

24. Under what conditions can regression analysis or other automated models take
the place of eyes on the property, experience, and judgment?

• Low allocated loan amount
• Known market conditions
• Large enough market sample to be reliable

AVMs can be useful when there is low to minimal collateral risk in a stable or appreciating
market, where the neighborhood is homogeneous and the subject property is conforming. Even
then, adverse conditions, unaccounted for in AVMs, can affect the marketability and collateral
strength or risk. The risk with AVMs has always been that properties with fair to poor condition
will be valued at a higher than market value position and properties in good to excellent
condition will be under-evaluated, even when model matches are utilized in the data set. This is
generally the result of the presumption of “average” in terms of quality and condition.

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