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Principles For Calculating Avm Performance Metrics

Author

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  • Hans R. ISAKSON
  • Mark D. ECKER
  • Lee KENNEDY

Abstract

An analysis of 5.3 million housing sales suggests that there are fundamental shortcomings with how automated valuation model (AVM) vendors currently calculate their AVM performance metrics, in particular the forecast standard deviation. The analysis demonstrates that the methodology used to calculate the values of performance metrics meaningfully impacts an AVM’s credibility. This article proposes consistent methodologies to calculate AVM performance metrics that comply with well-established appraisal principles and allow a consistent evaluation and comparison of AVM performance. A case study’s research AVM empirically illustrates that not following these principles yields overly optimistic AVM performance metric values.

Suggested Citation

  • Hans R. ISAKSON & Mark D. ECKER & Lee KENNEDY, 2020. "Principles For Calculating Avm Performance Metrics," The Valuation Journal, The National Association of Authorized Romanian Valuers, vol. 16(2), pages 38-69.
    • Handle: RePEc:vaj:journl:v:16:y:2020:i:2:p:38-69
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    More about this item

    JEL classification:

    • C15 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Statistical Simulation Methods: General
    • C53 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Forecasting and Prediction Models; Simulation Methods
    • R3 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Real Estate Markets, Spatial Production Analysis, and Firm Location

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