Editor’s Note: In our cover story last issue, “AVM Tango! Man or Machine?” we reported that as a result of our AVM questions, Appraisal Standards Board (ASB) Chair Greg Accetta indicated further clarification would be forthcoming. Here is a statement issued by the Appraisal Foundation in June 2007 (www.appraisalfoundation.org).
Are AVMs Appraisals?
Appraisal Standards Board on AVMs
Question: Are the results from an Automated Valuation Model (AVM) an appraisal?
Response: No. Advisory Opinion 18, Use of an
Automated Valuation Model (AVM), states: An AVM’s output is not, by itself, an
appraisal, and communication of an AVM’s output is not, in itself, an appraisal
report.
An AVM is a tool that delivers an estimation or
calculation, whereas an appraiser arrives at a value opinion by applying his or
her judgment and experience. An appraisal is defined as “an opinion of value,”
which is distinctly different from an estimate or calculation of value. An AVM
uses automated processes and cannot produce an opinion of value because only
individuals can exercise judgment and form opinions. An AVM is just one tool
among many that an appraiser might use to arrive at an opinion of value.
Appraisers are cautioned that this response is based on the USPAP definition of
“appraisal.” Jurisdictions that use a different definition of “appraisal” may
reach a different conclusion.
Appraiser’s USPAP Obligations When Using an AVM
Question: What are an appraiser’s USPAP obligations when using an Automated Valuation Model?
Response: Many appraisers use calculators,
spreadsheets, analytic software, and similar tools to analyze market data and
calculate assignment results. The nature of the appraiser’s service and how
these tools are used are important factors in recognizing USPAP obligations.
When appraisers use an AVM it can be as part of an
appraisal assignment that provides value opinions to the client, or it may be
for an assignment to run the AVM and provide the output to the client. Advisory
Opinion 18, Use of an Automated Valuation Model (AVM), provides advice to help
appraisers properly distinguish among the uses of an AVM.
An appraiser who uses an AVM for any purpose is subject to the requirements of
USPAP that apply to all appraisal practice: the DEFINITIONS, the PREAMBLE, the
Conduct, Management, and Confidentiality sections of the ETHICS RULE, the
COMPETENCY RULE, the JURISDICTIONAL EXCEPTION RULE and the SUPPLEMENTAL
STANDARDS RULE. When the assignment includes providing an opinion of value for
real property, the assignment is an appraisal and STANDARDS 1 and 2 also apply.