Automated models and expertise go hand in hand in valuations

Half of the 8,000 valuers in the Netherlands may eventually quit, claims Dick Brounen, professor of Real Estate Finance at Tilburg University in a recent article on the Vastgoedmarkt website. That is, if there is a ‘willingness’ to allow innovation. While Brounen’s assessment is a bold one, it is not unrealistic: data technology can vastly improve the efficiency of certain valuations. But is that really a threat to the profession? I prefer to regard it as an enrichment.

The value of an AVM

It used to take days to determine the total market value of a substantial real estate portfolio. Nowadays, an AVM can accomplish this in a fraction of the time. This type of mathematical model is an excellent tool especially for residential real estate, and we already use it frequently at CBRE. Further development of the technology and an increase in the available data will only improve the results.

Authoritative report

However, a good appraisal is about much more than just the bottom line, particularly when it comes to commercial real estate. Due diligence is also an essential part of a thorough valuation report, and includes matters such as investigating the possibility of contamination, or verifying the energy label. It goes without saying that a mathematical model can’t visit a property and take a look through the windows, or tour the surroundings to see what the neighbourhood is like. A valuer plays a monitoring role: if something appears to be wrong, then we investigate. This is important given that commercial real estate often involves considerable sums of money.

Ultimately, the bulk of the work is not in the figures, but in everything around them; in other words, a complete and reliable valuation report whose conclusions can be traced back to specific information. This has to do with liability, which is one of the primary reasons for the strict Nederlands Register Vastgoed Taxateurs (NRVT, Dutch Register of Real Estate Valuers) regulations in the valuation industry.

Development limitations

There is another reason that AVMs cannot fully replace the expert valuer. Mathematical models are based on the assumption of a completely transparent world in which data is comprehensive and always correct. However, the market is not that transparent, and properties are generally heterogeneous. Property owners often have compelling reasons not to be completely open about their buying and selling plans, or their real estate rental situation. Furthermore, I believe it is unlikely that a model will ever be able to take into account complex issues such as a leasehold structure, zoning changes or property expansion. No matter how good they are, AVMs rely on the past. By comparison, a real estate consultant is able to offer a prediction for the near future based on their personal market insights.

Best of both worlds

In order to provide the best possible service in the current market, valuers must combine state-of-the-art mathematical models with their in-depth knowledge of the real estate market. And that’s exactly CBRE’s approach: we use data technology in a smart way when it can help us to provide rapid and reliable valuations. However, we also rely on our market insight, years of experience and our international perspective.

Ultimately, it comes down to combining digitalisation with expertise. While innovation may enable the industry to proceed with fewer valuers, some of the work is shifting to our data analysts and the performance of consultancy assignments. And it’s simply becoming more fun. CBRE also has a nice advantage as a market leader: we have our own data in addition to public information. In my opinion, all of this enriches our services, which will significantly expand in the future.