1. The use of AVM’s in the Netherlands:
Netherlands Council for Real Estate Assessment
The use of AVM’s in the Netherlands:
How to deal with the risks they entail
Baltic Valuation Conference
25 May 2017
Ben Bervoets

2. Baltic Valuation Conference
Netherlands Council for Real Estate Assessment
Acknowledging the risks of using AVM’s
Baltic Valuation Conference

3. Baltic Valuation Conference
Netherlands Council for Real Estate Assessment
Valuation using AVM’s in The Netherlands
To ensure quality of valuations the NCREA sets out guidelines and performs continues audits
Baltic Valuation Conference

4. Baltic Valuation Conference
Netherlands Council for Real Estate Assessment
Control on input: Property Characteristics (1)
All characteristics that influence the value must be taken into account
Therefore the property registrations must be complete and up-to-date
Baltic Valuation Conference

5. Baltic Valuation Conference
Netherlands Council for Real Estate Assessment
Control on input: Property Characteristics (2)
Example:
Size: 120 m2
Year of construction: 1850
Size parcel: 600 m2
Size: 120 m2
Year of construction: 1850
Size parcel: 600 m2
Baltic Valuation Conference

6. Baltic Valuation Conference
Netherlands Council for Real Estate Assessment
Control on input: Property Characteristics (3)
Three measures:
Annual assessment of data quality
Every 5 years the registered characteristics of each property are checked (as set out in IAAO standards)
Owners/occupiers are frequently asked to check their property characteristics
Baltic Valuation Conference

7. Baltic Valuation Conference
Netherlands Council for Real Estate Assessment
Control on input: Market Analysis (1)
As sales prices are the most important input of a model, a good analysis is required.
Baltic Valuation Conference

8. Baltic Valuation Conference
Netherlands Council for Real Estate Assessment
Control on input: Market Analysis (2)
Sold for
€ 165,000.-
Sold for
€ 205,000.-
Baltic Valuation Conference

9. Baltic Valuation Conference
Netherlands Council for Real Estate Assessment
Control on input: Market Analysis (3)
Average price = € 185,000.-
What is the value?
Difference in quality or maintance situation?
Forced sale?
Divorce?
Family transaction?
Baltic Valuation Conference

10. Baltic Valuation Conference
Netherlands Council for Real Estate Assessment
Control on input: Market Analysis (4)
Measures in our guidelines:
Each transaction must be analysed to check the conditions of the sale
The property characteristics of each sold property must be checked
The relationship between buyer and seller is examined
New owner is asked for information on the sale
Baltic Valuation Conference

11. Baltic Valuation Conference
Netherlands Council for Real Estate Assessment
Using and developing models (1)
In order to use models for valuation purposes these models should be suitable for the task
Pure statistical models will not be sufficient;
Certain elements that influence the value cannot be statistically proved
Market specific elements must be taken into account, such as:
Distinguish between areas
Local preferences
Changing demands
Outcome must be checked on this!
Baltic Valuation Conference

12. Baltic Valuation Conference
Netherlands Council for Real Estate Assessment
Using and developing models (2)
Measures in our guidelines:
A model is never completed, but must be finetuned continuously, based on the outcome of the model
The model must help explaining the estimated value (models using clustering versus MRA)
Among the necessary competences for a model developer is knowledge of real estate markets (specialised valuer)
Baltic Valuation Conference

13. Baltic Valuation Conference
Netherlands Council for Real Estate Assessment
Control on Outcome (1)
Outcome is checked by:
Ratio studies (assessed value / sales price) (see IAAO Standards)
Comparison with asking prices
Comparison with last year’s value
Mutual comparability
Common Valuers knowledge!
Baltic Valuation Conference

14. Baltic Valuation Conference
Netherlands Council for Real Estate Assessment
Control on Outcome (2)
In order to be able to check the functioning of a model:
knowledge of statistics is needed
profound knowledge of real estate markets is needed
(valuer with specific statistical skills)
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15. Baltic Valuation Conference
Netherlands Council for Real Estate Assessment
Conclusion
AVM’s offer great benefits in terms of cost efficiency, speed and equitability
But: Using AVM’s requires the acknowledgement of risks
And: appropriate measure to deal with those risks
Thus: The development of standards on the wisely use of AVM’s is needed!
And as a profession we need valuers specialised in calibrating and checking models
Baltic Valuation Conference