Key Requirements to be fulfilled for AVMs receiving the “EAA AVM Label”
The EAA’s goal is to establish consistent quality standards for AVMs across European jurisdictions. The AVMs endorsed by the EAA fulfil the highest technical requirements within the industry, set and fully adhered to by all EAA members. Compliance with these requirements is certified through a rigorous and transparent assessment procedure by the EAA AVM label, and continued adherence is monitored on a regular basis.
- An AVM eligible for EAA membership should comply in full with the AVM definition set out in the EAA Glossary of Terms and the notes therein and with the European Standards for Statistical Valuation Methods for Residential Properties (ESSVM).
- It should be intended for residential properties and it should specifically include a Comparable Based Model wherever possible.
- The AVM must provide an estimated value for an individual property and a predictive measure of the estimated accuracy of each individual valuation, i.e. include as output for each property a sufficiently granular Confidence Measure directly translatable into a Forecast Standard Deviation (FSD).
- While retaining any country-specific Confidence Measures used historically, each EAA member must also adopt a common terminology (Confidence Level) and common scale (0-7). All historic outputs should be translatable into this common scale and the required translation tables must be regularly maintained.
- The effectiveness of using the Confidence Measure as a filtering tool to select the most accurate AVM results should be demonstrated by achieving a proportional increase in Accuracy for any given reduction in Coverage.
- The outputs of the AVM, e.g. in terms of Valuation result, Confidence Measure, Comparable Evidence etc, should be produced in a replicable and hence fully explainable and traceable manner, not through the sole deployment of black-box techniques.
- The performance of the AVM must be meticulously tested and clearly documented by way of producing and circulating regular AVM Performance reports from Bulk Tests and/or Lender Tests (clearly indicating which within the report).
- All reports must include suitable measures for each of AVM Coverage, AVM Accuracy (both in terms of Bias and Dispersion) and the reliability of any Confidence Measure, including at least: Hit Rate, Median Error, Average Absolute Error, Percentage of Results within FSD and Percentage of Results within 10% and 20% of Benchmark Value; segmented by all key dimensions, including at least: Property Type, Geographic Area, Price Range and Confidence Measure.
- Bulk Test Reports must be produced at least every quarter and manifest the utmost procedural integrity (e.g. always based on out-of-sample testing).
- The EAA only considers reliable Surveyor Valuations or Sales Prices as valid Benchmark Values for AVM Performance testing, which of the two depending on the established market practice (and clearly indicated within the report). Other data points, e.g. Asking Prices, are explicitly rejected for this purpose.
- The AVM should demonstrate a superior degree of accuracy than any publicly available House Price Index (HPI) in its own jurisdiction.
- When including / making use of its own proprietary HPI, this should encapsulate a suitable level of sophistication.
- The AVM provider must maintain an AVM Property Database complying with the definition set out in the EAA Glossary of Terms.
- A significant proportion of the data in the AVM Property Database must be received and uploaded at least quarterly.
- The service must include the ability to value properties without any manual intervention post-initiation to maintain complete objectivity.
- It must also include the ability to value properties as of an inputted Effective Date in the past, not just as of the current date, going back in time at least 5 years.
- The AVM provider must produce and maintain a document (or set of documents) clearly detailing the Input Requirements of the AVM (possibly depending on intended use).
- The development, operation and updates of the AVM must be conforming to reasonable industry standards, with regards to environment segregation, roll out procedures, testing, security, source code control, database systems and availability of online interfaces or APIs (if these delivery channels are offered).
- The AVM must be commercially available, not just for internal use, and its positioning must include financial institutions within its targets, not just consumers.
- It must have been utilised in the market by a minimum of two financial institutions for decisions making purposes (e.g. for monitoring, revaluation, audit or as the primary valuation for mortgage origination).
- The model must have never been rejected by the national supervisor or by a Rating Agency on the basis of any individual deficiencies.
- The AVM provider must subscribe to the EAA strategic targets as expressed in the EAA Mission Statement.
All terms with capitalised initials should be intended strictly in accordance with their definition in the EAA’s Glossary of Terms.