Precision

Brookings Oct 2023 AVM Whitepaper makes some excellent points. We provide our perspective, support most of their recommendations, and point out how they underappreciated our contribution to the AVM industry.

AVMetrics has a new method of testing AVMs. The goal is to avoid the process of "anchoring," which is when AVMs adjust their valuations based on listing prices. Our new method is a dramatic innovation that will level the playing field for all the AVMs.

Many lenders use the "15% rule" for AVM-based quality control, assuming that when an AVM estimate aligns with an appraisal value, both are accurate. This widespread practice reveals a fundamental misunderstanding that could be undermining the entire valuation ecosystem. The problem? Comparing AVMs to appraisals measures precision, not accuracy. This distinction isn't just semantic—it's the difference between knowing whether your valuations actually predict market value or simply agree with other estimates. When institutions use AVMs to validate appraisals in QC processes, then turn around and use those same appraisals to test AVM accuracy, they create a dangerous circular logic that masks true performance. This article examines why the only meaningful benchmark for AVM accuracy is the actual sale price—the endpoint of market negotiation. We explore the critical importance of blind testing, MLS data suppression, and alignment with real-world use cases. Most importantly, we demonstrate how the Interagency Appraisal and Evaluation Guidance explicitly supports testing AVMs against actual sales data, not appraisal estimates. Understanding this distinction is essential for lenders, AMCs, and AVM vendors who need to move beyond the comfort of circular validation to achieve genuine predictive accuracy.