Residential Property

Regulators are signaling that they are going to be looking at AVM testing. They are focused on valuation discrimination. This represents a change in the focus on AVMs and the need for all lenders to focus on AVM validation to avoid unfavorable attention.

Using appraisals seems like a great way to get more benchmarks for testing AVMs, and since AVMs and appriasals are trying to do the same thing: predict sales prices, it seems intuitively appealing. However, there are some fundamental problems with using appriased values to test AVMs. Appraised values are subjective and inconsistent, and they introduce bias and compound errors. This article explains why arms' length transactions are the only appropriate way to test AVMs.

This op-ed offers an affirmation of the core tenets of what is becoming the industry-standard testing framework: a data-driven testing methodology grounded in sound and prudent validation principles. While Veros challenges this approach, the broader AVM ecosystem—including regulators, lenders, and nearly all major AVM providers—have embraced a process that prioritizes objective, real-world performance measurements over now antiquated methods allowing for data leakage into the Automated Valuation Model.