When is an AVM NOT an AVM? When it's ZAIO?!

With all of the home valuation products that have hit the market this year, are you getting as confused as I am? 

First we have AVM (Automated Valuation Model) providers that claim that they are NOT appraisals and therefore not subject to rules and regulations that traditional appraisal products are. 

Now we have Zaio that says its products are appraisals (and USPAP compliant) but that they are NOT an AVM???

Appraisal Central, in their article "DANGER OF ZAIO Corporation - they're building a better AVM", says:

This company (Zaio) has its head office in Calgary Canada. Their intent is to come up with a more accurate automated valuation database that includes photographs of the exterior of each residential property in the U.S. They want appraisers themselves to provide these pictures, along with a written description of the home(s) and neighborhoods they're in; so that ZAIO can gain leverage with lenders by telling them an actual experienced and licensed appraiser provided this information. The reason?  This Canadian company wants to be on the forefront of providing Lenders with data they can use to do more Automated Valuations Modules (AVM). 

So IS Zaio an AVM?  Read more >

According to Zaio's website: "Zaio’s proprietary technology and processes allow individual licensed appraisers to efficiently mass produce large volumes of appraisals for every home in an entire city."

I don't know about you, but that sounds just exactly like what my local assessor does and there's no question that THEY are using AVM technology.   

When you think about it, how else could a small to medium sized appraisal firm (Zaio's targeted vendors) possibly do thousands and thousands of property valuations?   They would HAVE to use some sort of automated valuation technology Right?

When asked Does Zaio produce an Automated Valuation Model (AVM) product? they respond:

"Each valuation product is produced by a licensed appraiser in conformity with USPAP. The primary difference between a ZAIO valuation product and a traditionally produced appraisal report is that the Zaio appraiser has inspected the property and prepared the report IN ADVANCE of the transaction."

Does "when" an appraisal is completed have anything to do with the "technology" used to create the valuation?  Not really!  However, the statement above does seem to place the responsibility for the valuation squarely on the shoulders of the appraiser rather than Zaio.

Can an AVM be prepared by a "licensed appraiser in conformituy with USPAP?  Sure!  USPAP's Standard 6  "applies to all mass appraisals of real or personal property regardless of the purpose or use of such appraisals." 

In an Appraisal Buzz interview, they ALSO asked  Is this a type of AVM or what is Zaio doing?  Zaio responded: "There seems to be a misconception in the market that Zaio appraisers are producing an AVM, but, this is not the case. Computers do not determine the value…real appraisers do. We are simply delivering the appraisal industry a unique and powerful structure where local appraisers can completely analyze all listings and sales in a specific neighborhood, on an ongoing basis, to pre-appraise and track the value every single dwelling ."

HUH?!  We're completely analyzing all listings and sales to pre-appraise every single dwelling but we're NOT using AVM technology?  It sure sounds to ME like we're into Standard 6 for mass appraisal.   

Zaio, What if a particular property is just too unique to be properly appraised by this mass appraisal process? 

"Appraisers make the final determination, property by property, as to whether their values will be available to clients through the Zaio system." 

Again, Zaio is clearly putting the responsibility for the value and methodology squarely on the shoulders of the appraiser and they don't even quibble about the term "mass appraisal process".

But Zaio, Is this methodology USPAP compliant?  They respond

"Yes, Zaio’s process and products conform with USPAP Standards 1, 2, and 6."

Zaio affiliated appraisers are required to inspect and evaluate every home in a concentrated area.  According to a Zaio press release:

"The appraisals, prepared by licensed and certified appraisers who are experts in their local area, are assembled in a large database PRIOR to refinance and purchase transactions. Zaio affiliated appraisers have found that it is much more efficient to appraise thousands of properties in advance of a transaction rather than appraising one property at a time as is the current industry practice."

OK . . .Here's the thing?  Why can't Zaio just ADMIT that they (or that appraisers) are using AVM technology to produce Mass Appraisals? Why all the tap dancing?

If one reads USPAP Standard 6 you'll find that it "applies to all mass appraisals of real or personal property regardless of the purpose or use of such appraisals."

A mass appraisal includes:

• identifying properties to be appraised;
• defining market area of consistent behavior that applies to properties;
• identifying characteristics (supply and demand) that affect the creation of value in that market area;
• developing a model structure that reflects the relationship among the characteristics affecting value in the market area;
• calibrating the model structure to determine the contribution of the individual characteristics affecting value;
• applying the conclusions reflected in the model to the characteristics of the property(ies) being appraised;
• and reviewing the mass appraisal results employ recognized techniques for specifying property valuation models;

If the APPRAISER is responsible for the valuation here's what Standard 6 says that THEY must do (or understand):

The formal development of a model in a statement or equation is called model specification. "Mass appraisers must develop mathematical models that, with reasonable accuracy, represent the relationship between property value and supply and demand factors, as represented by quantitative and qualitative property characteristics." "The concept of recognized techniques applies to both real and personal property valuation models. employ recognized techniques for calibrating mass appraisal models."

Calibration refers to the process of analyzing sets of property and market data to determine the specific parameters of a model. The table entries in a cost manual are examples of calibrated parameters, as well as the coefficients in a linear or nonlinear model. Models must be calibrated using recognized techniques, including, but not limited to, multiple linear regression, nonlinear regression, and adaptive estimation.

BOTTOM LINE:  I'm not anti-AVM.  BUT, I do think that AVM providers should be held to SOME standard if the stability of our nation's economy can be significantly effected by the accuracy of their "proprietary technology".   And certainly, if licensed and certified appraisers are involved in the valuations, they need to be knowledgeable in the model development and calibration.  USPAP Standard 6 demands that.

Author: Brian J. Davis, RAA - Brian Davis & Associates - Brian has over 22 years of appraisal experience in Central, IL and hosts the Appraisal Scoop blog and the WinTOTAL Users Group an email forum for appraisers.