Valbridge: Automation Can Assist Valuation Process, But Not Replace It
The pandemic has forced the appraisal business into a surreal experience: many valuation professionals had their physical connections to the market severed or diminished. The question became: how best to assign value to the properties that appraisers are tasked with assessing especially while the demand for valuation has grown. Where does the rise of automatic valuation systems (AVSs) fit in with the valuation process?
Karl Finkelstein, vice president of Business Development and senior managing director for Valbridge Property Advisors, spoke recently to REBusinessOnline. He explains, “The appraisal business is still all about reporting on what we see in the marketplace. That hasn’t changed. What has changed is our physical connection to the market — talking with market participants and attempting to read the tea leaves.”
As for many companies, the past few months have been a time of reassessment and reengagement with the technology and tools at hand. “We’ve had to rethink how we do inspections; we’ve had to rethink how we physically interact. Technology has given us a big hand with that, and it has changed some of the some of the ways we do business and enhanced others,” says Finkelstein.
A Hands-On Business, Socially Distanced
Physical inspections remain extremely important, but Valbridge has begun to lean on options like video inspections (sometimes utilizing drones) and discussions with brokers or clients via video conference.
But one concern these familiar tech-based options can’t address is the human element of valuation. Finkelstein explains in addition to daily contact with market participants, many of the Valbridge professionals are also deeply involved in their community (serving as members of the Chamber of Commerce, going to business events, belonging to charities or volunteering). This helps the people at Valbridge really get a handle on what is happening in the local markets, not only economically but politically and socially as well. Being unable to participate in these things make the full picture of valuations more difficult to achieve, although there are workarounds.
The Need for Tech and Valuation in the Near Future
External risks for real estate and actual wear and tear on property both increase the importance of a credible valuation. Finkelstein sees valuation becoming even more necessary as real estate becomes more commoditized and a broader pool of people are considering risk.
“I don’t think we’ll get to a point where technology totally replaces the appraiser. There’s something to be said for gut feeling — and that comes from years of experience and having talked to every single broker involved in a deal. It’s important to really understand the nuances of a transaction. That’s something that artificial intelligence can’t really pick up on.”
Drive-by assessments or drone inspections will continue to be part of the process for the foreseeable future, but Finkelstein is most excited for technology’s role in helping take a better look at the data. Humans can only take in so much information at once and technology can only use cleaned, verified data, which can be hard to come by and harder to keep updated. But when you couple human intuition and knowledge with machine-learning that looks at data to help predict trends, Finkelstein thinks that AVSs like Valbridge’s Valnow tool are important products to bring to the market.
Evaluating Automatic Valuation Systems
Still, Finkelstein is cautious about the role AVSs have to play. Instant access to a value is helpful, and yet that is not the full picture — hence it cannot replace the need for a full valuation. In a world that is increasingly trying to commoditize real estate, Finkelstein warns that human experience and intuition still must factor into the equation. There simply isn’t enough information in the world one could feed into an algorithm to replace the value of human involvement
However, AVSs are perfect for sparking curiosity. “It’s very easy to log into our Valnow system, and depending on how much information you have, get a value estimate. It’s certainly helpful for a client that maybe has five or six hundred properties in a portfolio, and they want to test the reasonableness of their projections for that portfolio based on income, expense factors, etc. We think it is very complementary to what we do now as a company.”
In many cases, Finkelstein sees clients and tax appraisers using the AVS as a second opinion on their process. Attorneys have been using these types of tools as quick checks, and even private individuals are using them to determine whether they need to have an appraiser go out and look at the property and perform a full valuation analysis.
Keeping Data Up to Date, Encouraging Use
Valnow’s data is fortunately somewhat immune to the slowdowns of other systems that rely on public records (data that is slow to update even without a global pandemic). Valbridge uses public information for demographics and statistics from the Federal government, but the majority of the information on Valnow is data that’s already been verified by their appraisers.
The ability to promote curiosity and provide clients with an additional tool is part of Valbridge’s attempt bring to multiple forms of expertise to a shifting appraisal business. Finkelstein doesn’t believe the human element can be outgrown with technology, but appraisers can certainly put such tools to good use.