Automated Valuations are valuations which have been generated by a computer model, as opposed to a Chartered Surveyor. Different methods are used by different providers, however, the common characteristic of all automated valuation models (AVM) is that historical data is indexed to predict current house prices. The two main methods of indexation are the Hedonic approach and Repeat Sales Regression.
The Hedonic method is a characteristic based model and assigns a value to each of the characteristics within a property, and assumes that the value of the house is the sum of these characteristics. As mentioned earlier, the value of a home is made up of a variety of tangible and intangible factors- the problem with this method is that only certain physical factors are taken into account.
The second method uses Repeat Sales Regression (RSR). The RSR method focuses on price changes rather than prices themselves, directly measuring these changes by examining only houses that have been sold at least twice. These measurements are combined in fairly intuitive ways to form estimates of the price index or growth rate in any particular time period.
+ Cost effective
– Does not allow for significant refurbishment of deterioration of a property.
– Cannot always provide accurate valuations for individual properties where no real comparables are available.