ComValAVM

This article is about an automated valuation model for commercial real estate. ComValAVM is an automated valuation model (AVM) developed by Eric Reenstierna Associates. Automated valuation models have been in use in the residential field for a number of years. They are controversial, in that they can be used as substitutes for appraisals made by human appraisers. Automated valuation for commercial property is in its infancy. And, in the commercial field, an AVM is not so much a substitute as it is an appraiser's tool, like any of the other tools in an appraiser's belt - Argus, the HP12C, or Google. ComValAVM is intended for use by appraisers, who can incorporate the output of the AVM into their own work in order to save time in quick analyses. Users can access ComValAVM online at http://www.comvalavm.com (or, if you are reading this article online, click on the logo at the end of this page). Free of charge, the system can be used to make an automated valuation of an apartment, office, retail, or industrial property.

ComValAVM is an outgrowth of earlier Web-based work done by this office.

In 1996, Eric Reenstierna Associates founded a Web site, WebAppraiser. The site served appraisers, providing links to appraisal organizations, data sources, and vendors. Two of its innovations were sophisticated. One was the "Research Exchange." Here, an appraiser who was engaged in the valuation of some special-use property for which market data collection is difficult - say, an asphalt plant - could click on "asphalt plants" and find a list of other appraisers who had gone to the Research Exchange looking for asphalt plant data in the past. The appraiser could contact any of these with a request to share data, and expect to find someone who had done much of the groundwork. The new appraiser's name then went to the top of the list, available to whoever came along next. A similar system is in place today at a different company, Appraisal Data Connection.

The second was Municipal Descriptions. Here, the user could identify a city or town anywhere in the U.S. and obtain a description, in text, that compared that town to its state or metropolitan area. WebAppraiser generated the text from statistical information in the U.S. Census. The description was instantaneous and supplied text concerning median dwelling value, per capita income, employment, and other important characteristics.

WebAppraiser taught us some of the unique capabilities of the Web and taught us about automation. It also taught us about profit. We learned that it is one thing to generate user traffic - which the site did - but something else to generate cash flow. As Yogi Berra might say, "We ran a very successful business, except that it didn't make any money."

ComValAVM went on the market in 2002. The premise of ComValAVM is that a certain percentage of appraisal work consists largely of applying a standard formula concerning vacancy, expenses, and a capitalization rate to numbers that are readily available to an appraiser on the property's rent roll. This is work that requires an appraiser to review the sensibility of the data. Because it is simple and formulaic, it is capable of mechanization.

At ComValAVM, the appraiser takes a ten-minute online survey. At completion of the survey, the appraiser receives an online report that provides as many as nine different analyses through the Income Approach and others, together with a value conclusion. The system is suitable for use with commercial real estate in any of the major sectors anywhere in the U.S.

ComValAVM competes with AVMs from much larger companies. What distinguishes ComValAVM from competitors is the method of valuation it employs. Competitors' valuation models for the most part treat commercial real estate like residential real estate and rely on analysis of comparable sales. But the value of commercial real estate is found more often through rental income. ComValAVM is based on rental income analysis. ComValAVM applies the methods that are most in favor with appraisers and so, in our view, for appraisers is the most suitable tool.

We invite appraisers to visit our model online at ComValAVM.com.

Eric T. Reenstierna, MAI



The Reenstierna Associates Report is published as a service to the clients of Eric Reenstierna Associates and other real estate professionals. The views expressed are those of the articles' authors and do not necessarily reflect those of other members of the organization. Copyright 2004. All rights reserved.

Eric Reenstierna Associates
24 Thorndike Street
Cambridge, Massachusetts 02141
(617) 577-0096

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