# AVM Glossary

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• The economics of the economy as a whole the forces causing recession, depression, and inflation together with the forces resulting in economic growth.
• A test in inferential statistics, similar to the Kruskal - Wallis test, that seeks to determine whether the differences in values between two sets of observations from any population are statistically significant.
• A conventional representation, usually on a plane surface and at an established scale, of the physical features (natural, artificial, or both) of a part or the whole of the earth's surface. Features are identified by means of signs and symbols, and geographical orientation is indicated.
• A measure of the uncertainty associated with statistical estimates of a parameter. It is typically linked to consumer surveys or political poll questions. A margin of error is a key component of a confidence interval. It reports a "plus or minus" percentage or proportion quantity in a confidence interval at a specified level of probability (typically 95 percent). See confidence interval.
• (1) The topical area of common interest in which buyers and sellers interact. (2) The collective body of buyers and sellers for a particular product.
• Market adjustment factors, reflecting supply and demand preferences, are often required to adjust values obtained from the cost approach to the market. These adjustments should be applied by type of property and area and are based on sales ratio studies or other market analyses. Accurate cost schedules, condition ratings, and depreciation schedules will minimize the need for market adjustment factors.
• A study of real estate market conditions for a specific type of property.
• An appraiser who studies real estate market conditions and develops mathematical formulas that represent those market conditions.
• A valuation term with several meanings. In its broadest use, it might denote any valuation procedure intended to produce an estimate of market value, or any valuation procedure that incorporates market - Derived data, such as the stock and debt technique, gross rent multiplier method, and allocation by ratio. In its narrowest use, it might denote the sales comparison approach.
• (See Economic Area)
• The price a particular buyer and seller agree to in a particular transaction; the amount actually paid. Compare market value.
• Accounts for changes in market conditions between the time a comparable sold and the effective date of the appraisal. See market adjustment factors.
• Market value is the major focus of most real property appraisal assignments. Both economic and legal definitions of market value have been developed and refined. A current economic definition agreed upon by agencies that regulate federal financial institutions in the United States is: The most probable price (in terms of money) which a property should bring in a competitive and open market under all conditions requisite to a fair sale, the buyer and seller each acting prudently and knowledgeably, and assuming the price is not affected by undue stimulus. Implicit in this definition is(...)
• The salability of a property at a specific time, price, and terms.
• The process of valuing a group of properties as of a given date, using standard methods, employing common data, and allowing for statistical testing.
• A mathematical expression of how supply and demand factors interact in a market.
• A measure of central tendency. The result of adding all the values of a variable and dividing by the number of values. For example, the (arithmetic mean) of 3, 5, and 10 is 18 divided by 3, or 6.
• A measure of an AVM’s precision, mean absolute error is the average percentage error that the model exhibits when evaluating the properties in the test sample. However, analysts take the absolute value of the percentage error (i.e., the magnitude or size of the variance) instead of distinguishing between positive and negative error. For example, a mean absolute error of 8.75 percent indicates that, on average, the AVM’s valuations differ from the reference value by 8.75 percent.
• The average valuation error. Analysts calculate an AVM’s mean error by totaling the percentage of variance for each value estimate in the sample and dividing by the number of returned valuations. This metric indicates the extent to which an AVM tends to overvalue or undervalue subject properties. For example, a mean error of 2.5 percent suggests that, on average, the model’s valuations overestimate properties’ market values by 2.5 percent.
• A measure of central tendency. The value of the middle item in an uneven number of items arranged or arrayed according to size; the arithmetic average of the two central items in an even number of items similarly arranged; a positional average that is not affected by the size of extreme values.
• The median of the absolute deviations from the median. In a symmetrical distribution, the measure approximates one - Half the interquartile range.
• A measure of an AVM’s precision, median absolute error enables testers to determine the ‘middle’ degree of variation between an AVM’s outputs and the corresponding benchmarks. To calculate this metric, analysts take the absolute value of the percentage error (i.e., the magnitude or size of the variance) instead of distinguishing between positive and negative error. For example, a median absolute error of the 8.75 percent suggests that half of the model’s predictions are within 8.75 percent of the sale price (whether above or below) and half are outside of that range. As with measures of(...)
• A measure of AVM bias, or the extent to which an AVM tends to overvalue or undervalue subject properties. Analysts determine the median variance by sorting the percentage error for each valuation from lowest to highest. For samples with an odd number of results, the ‘middle’ percentage error represents the median error. In instances where there is an even number of results, the median is the average of the middle two percentage errors. A median error of 2.5 percent suggests that 50 percent of the AVM’s valuation errors will be greater than 2.5 percent and 50 percent of the model’s value(...)
• The median of the absolute percent deviations from the median; calculated by dividing the median absolute deviation by one - Hundredth of the median.
• The economics of units, such as firms and neighborhoods, of an economic system (as opposed to macroeconomics, which studies the economy as a whole).
• Any of a family of possible ways of measuring distance. Euclidean distance, a member of this family, computes straight - Line distances by squaring differences in like coordinates, summing them, and taking the square root of the sum. In mass appraisal model building, Minkowski metric usually refers to the sum of absolute differences (not squared) in each dimension, and resembles a "taxicab" or city block pattern. Other alternatives are possible, including the distance as calculated only for the dimension of greatest difference, but the city block distance is most common.
• A measure of central tendency. (1) In an array of the values of a variable, the most frequently occurring value. (2) By extension for grouped data, the class with the greatest number of observations.
• Representation or description of a system, theory, process, workflow or other phenomenon (e.g. model of an atom, an economic model). A model may attempt to represent how a system or other phenomenon works or functions. For example, computer models are representations of the various relationships among events, processes or values. A model is made up of one or more Methods.
• The development of the adjustments or coefficients from market analysis of the variables to be used in an automated valuation model.
• A Model Preference Table® ranks AVMs approved for use in a particular geographic area based on specific performance criteria. The sequence determines how an automated platform will order valuations from these sequenced models. An MPT® can be an element of a cascade.

Sources:

a)       AVMetrics

b)      AVMs 201: A Practical Guide to the Implementation of Automated Valuation Models, Jim Kirchmeyer, 2008.

c)       IAAO 2015, Glossary for Property Appraisal and Assessment, 2015. (2013 online: https://www.iaao.org/media/Pubs/IAAO_GLOSSARY.pdf )

d)      Collateral Assessment & Technologies Committee, Summary of Definitions & Terms, 2006.

e)      Joint Industry Task Force on AVMs, IAAO Standard on AVM Glossary, September 2003. https://www.iaao.org/media/standards/AVM_STANDARD.pdf

f)        Appraisal Institute, Joint Industry Task Force on Automated Valuation Models, Work Group Terminology, 2005.

g) Merriam-Webster (https://www.merriam-webster.com/)