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

Baltic Valuation Conference Netherlands Council for Real Estate Assessment Acknowledging the risks of using AVM’s 25-5-2017 Baltic Valuation Conference

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 25-5-2017 Baltic Valuation Conference

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 25-5-2017 Baltic Valuation Conference

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 25-5-2017 Baltic Valuation Conference

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 25-5-2017 Baltic Valuation Conference

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. 25-5-2017 Baltic Valuation Conference

Baltic Valuation Conference Netherlands Council for Real Estate Assessment Control on input: Market Analysis (2) Sold for € 165,000.- Sold for € 205,000.- 25-5-2017 Baltic Valuation Conference

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? 25-5-2017 Baltic Valuation Conference

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 25-5-2017 Baltic Valuation Conference

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! 25-5-2017 Baltic Valuation Conference

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) 25-5-2017 Baltic Valuation Conference

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! 25-5-2017 Baltic Valuation Conference

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) 25-5-2017 Baltic Valuation Conference

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 25-5-2017 Baltic Valuation Conference