RealAVM – Learning More About Hedonic Valuation Models

Hedonics is a word associated with hedonism, or the pursuit of pleasure. Sorry if we disappoint, but we will not discuss that usage in this blog post.

Hedonics is a term that is also used for economic modeling, and especially for modeling the value of real properties. In this context, hedonics defines an approach to modeling that accounts for the absence of uniformity among subject properties and the disparity of data available to value them.

RealAVM uses a patented hedonic-based valuation model that applies multiple methodologies for each valuation. We use multiple modeling approaches because of the nature of property data is different for each county and local market conditions. It utilizes property comparables, appraiser emulation, home price indexes, and other statistical methods. MLS data and neighborhood trends are also included in these algorithms. After all of the valuation methods are complete, the RealAVM engine reconciles the values generated by the various methods to achieve a final value.

Please note that RealAVM is an exciting feature of most, but not all Realist implementations. If you do not see RealAVM in property detail reports or as a Trend Map like the one pictured below, please contact your MLS help desk.

To learn more about how RealAVM works, read on!

One method RealAVM uses to determine value is “appraiser emulation,” which is strongest in areas with significant in-depth property characteristics data. It also tends to be the best method for valuing properties in the absence of supply-side information. A typical model search pulls all properties near the subject that have a full, arm’s length transaction and the same use code as the subject. The distance used for the search will depend on the density of properties surrounding the subject property. RealAVM brings data comparables current using proprietary indices. The average number of sales pulled per property is around 90, but it is not uncommon for RealAVM to include 300 comparables in order to assign an estimated value to a property.

Valuation methods such as indexing do not require as much characteristic data depth to produce valuation results. Indices examine individual properties on which there have been multiple sales over time. Those repeat sales – and the indices derived from the repeat sales – are a predictor of value changes over time that can be applied to subject properties.

RealAVM also uses MLS data, where available and permitted, to refine characteristic information available for the subject and comparable properties. RealAVM also applies MLS data to model current market conditions and their influence on actual sales value.

Tax assessed valuation methodologies can be performed with less rigorous access to characteristic data, but as with all modeling, the less data available to a model, the less likely the result is to be accurate.

RealAVM manages data variances by using multiple or hedonic modeling like that described above. RealAVM is tested on a daily basis through an exhaustive, blind testing process known as our GeoAVM™ testing process. We produce property values on 100% of the domestic residential housing stock on a rolling basis. When we identify a purchase transaction, we pull the most recent “blind” valuation we produced on that property (typically within the last 3-5 days) and compute the accuracy of the AVM. In this way, we are able to produce immediate feedback on the accuracy of our models. Any deviations from performance standards are immediately addressed. There is a dedicated team that tunes and maintains the model for maximum performance.

RealAVM is a leading model that attempts to emulate the skill and art professionals like you bring to the valuation process. Realist contains RealAVM valuations for virtually every property in each MLS marketplace. Realist provides RealAVM on property detail reports, on trend maps, or on rooftops as shown below.   

But as we all know, there are unique and nuanced attributes of homes and local markets that impact the value of properties. The skill and art of valuing a home is difficult to master, and challenging to apply for the most seasoned professionals. RealAVM should not be used in place of the local knowledge, experience and skill a seasoned real estate practitioner or appraiser brings to the table.

However, RealAVM should be used as one of the many tools you use to research properties and neighborhoods, to serve clients who wish to see an automated valuation, or to educate prospects who present other AVMs to you. Use it to sharpen your own insights on local market conditions and to enhance your presentations. You’ll be glad you did!

Tell us how you’ve used RealAVM in the comments section below.