Why continue to “polish the apple” with property valuations?
Polishing an apple makes it attractive to eat which is why it is done. However, continuing to polish the apple when it is already shiny and there to be eaten is wasted effort. The utility of the apple can only be released when it is eaten. Hence the phrase “continuing to polish the apple” when applied to other situations, in this case property valuations.
Over the years there have been various models, algorithms, and even artificial intelligence applied to real estate valuations in order to establish more and more accurate assessments of individual property values. Given the importance of this to banks, insurance companies, and mortgage providers, most methods have resulted in what is termed an automated valuation model or AVM. However, despite the technological advances over the last decade, many of the AVMs are still essentially approximations based on a few core attributes of a property and its location.
Many PropTech startups are now focusing on refining traditional AVMs in the hope of better engagement with property researchers and to secure business with key users of such valuations eg banks. But are these startups merely continuing to “polish the apple”? Will refinement of valuation models add anything to the real estate transaction journey? I don’t believe so. The answer lies in the relationship between buyer, seller, and the real estate agent.
Real estate selling is merely a bid process with an underlying base level price set by the seller. Whether that seller is influenced by unrealistic expectations, or has heeded the advice of the agent, or used an AVM, is irrelevant. What matters is how potential buyers regard the property and what they are prepared to pay. No matter how “accurate” any AVM purports to be, at the end of the day it is always about a buyer’s personal preferences for the property. Of course, if the buyer is using the information obtained from an AVM then that may alter their bid price, but then it is back in the hands of the seller as to whether that is acceptable.
Looking at a range of properties and recent sales in any locality, it is very easy to see the disparity in pricing, despite there being various AVM generated prices published for specific types of houses in that locality. Any system of averaging, which almost all models use, is quite easily found wanting when applied to any single property. Then why are we continuing to attempt refinement of such valuations? COVID-19 has shown that any property statistics and trends can change in the blink of an eye so can any refinement in AVM lead to any greater predictability in selling prices?
The point is that if you are looking to sell or buy property, how influenced are you, or should you be, by providers purporting to tell you what the “real” value is. Are you really going to let someone else tell you what to pay for the property? We already have plenty of price information which provides a comfort range to commence research or negotiations with no more need to polish the valuation apple, let’s get on and eat it!
