Zaxia.us is a commercial real estate AVM (automated valuation model) developed
by this office. It is the successor to SecondStreetIndex.com (2010) and
ComValAVM.com (2000), both also developed here. We have been at this a while.
Zaxia.us is a simple-to-use, more complete, and, from our testing, more accurate
AVM than its predecessors. As our AVMs have evolved over twenty years, so too
has the marketplace changed, with competition where there was none before and
with increased receptiveness on the part of lenders, regulators and others to a
tool like an AVM.
For one thing, Zaxia is more robust than its predecessors. Where earlier
versions offered no comparable sales, a Zaxia report includes three. A Zaxia
Report, fully automated and delivered immediately, runs to fourteen pages and
includes a detailed analysis through the Income Capitalization Approach.
The marketplace has changed and can be expected to change further as commercial
real estate AVMs prove their usefulness. When we released SecondStreetIndex.com
in 2010, Evaluations were just coming into being. Evaluations made for lenders
are one of the most useful applications of a commercial real estate AVM, and
lenders make up the highest proportion of potential demand for an AVM.
A borrower comes to the bank looking for a loan of $200,000 secured by a
building worth $800,000, with the value fairly evident because of two recent
sales of similar properties on the same street. The lender looks for an
appraiser and finds that the cost of an appraisal is $3,000, with a turnaround
time of three weeks. The cost of the appraisal seems out of proportion to the
amount of the loan. The borrower justifiably objects. The lender feels that
her hands are tied by banking regulations.
But they are not. The "Interagency Appraisal and Evaluation Guidelines" allow
the lender to use an Evaluation in place of the standard appraisal in situations
where the loan amount is below a certain threshold (in mid-2019, for commercial
properties, $500,000). An Evaluation can be completed at a substantially lower
cost, likely by the same appraiser using an AVM. The loan is safe, provided
that the Evaluation (and the AVM output that it incorporates) is high quality.
A Zaxia Report incorporated as part of the Evaluation contains the main elements
of a commercial appraisal - three comparable sales and a step-by-step rental
income analysis. The cost makes sense, the loan is made, and everyone can go
An AVM like Zaxia can be useful at various stages:
• for the appraiser producing an Evaluation
• for the broker looking for a valuation for marketing
• for the lender evaluating the collateral in a first meeting with the borrower
• for an investor wanting to keep tabs on the value of properties in a portfolio
In 2010, the commercial real estate AVM field was wide open: virtually no one
marketing their AVM for general use was in it. Today, the field is more
populated. Startups include one from South Korea, one from The Netherlands,
and one from Texas. Zaxia is from Cambridge, MA. The largest company in the
commercial real estate data field, CoStar, offers a product that puts out a
100-page, property-specific report that does pretty much everything except put
a value on the property.
These AVMs use a variety of means to reach a property's value. Some go back to
the last date when a property was sold and apply a rate of appreciation to
produce a value. Some use a property's current tax assessment and apply a
multiplier to that. One ambitious method is to "number crunch" a large volume
of comparable sales of, say, industrial or apartment buildings, the same method
that is employed by many successful residential AVMs. The difficulty there is
in finding enough comparable sales to crunch. Without enough comparable sales,
nothing significant results. Zaxia's method is to place emphasis on an
analysis of rents, expenses, and capitalization rates - the basis of value for
most commercial properties - as well as to take account of comparable sales.
Some of these methods are likely to prove superior to others. Some are more
likely than others to gain market acceptance.
If history is any guide, it is likely that one or two of the current entrants
in the competition to provide reliable valuation advice - or one that has not
yet even been developed - in time will come to dominate the field.
Eric T. Reenstierna, MAI