Investigating the use of Automated Valuation Models (AVMs) in the South African commercial property market

Abstract

English: The adoption of Automated Valuation Models (AVMs) in the field of property valuation is a trend, considered controversial and not readily accepted by the valuation profession. The aim of the article is to report on a study conducted in an attempt to determine whether the commercial property sector in South Africa is ready to accept and adopt or reject AVMs and to investigate the possibility of AVMs replacing professional valuation services for commercial property valuations. Limited research was available both nationally and internationally on commercial property AVMs. It was found that AVMs utilised for the valuation of commercial property are still in the development phase and cannot be considered feasible as yet. The major concerning factor is that commercial property markets are heterogeneous. AVMs offer various advantages over traditional methods, but there are also some disadvantages, which were identified in the study. Structured interviews were conducted to determine the opinions and sentiments of commercial property professionals towards commercial property AVMs. As no AVM system exists for commercial property in South Africa, no factual opinion or experience was obtained. The general attitudes towards AVMS were negative and a small percentage of respondents indicated that there may be future potential. AVMs were also regarded as a threat to the valuation profession. It was established that there is scope for commercial property AVMS, however, on a limited basis, and the results could be improved by combining these with traditional valuation techniques. Commercial property AVMs will never replace traditional valuations and can be implemented as a useful tool for verification and auditing of values.

Afrikaans: Die aanvaarding van Automatiseerde Waardasie Modelle (AVMs) in die veld van eiendomswaardasies is ‘n tendens wat beskou word as kontroversieël en word nie geredelik deur die waardasieberoep aanvaar nie. Die doel van die artikel is om verslag te doen oor ‘n studie wat gedoen is in ‘n poging om te bepaal of die kommersiële eiendomsektor in Suid-Afrika gereed is om AVMs te aanvaar en aan te neem of te verwerp asook om ondersoek in te stel of daar ‘n moontlikheid is dat AVMs professionele waardasiedienste sal kan vervang rakende kommersiële eiendomswaardasies. Beperkte navorsing kon plaaslik en internasionaal in hierdie verband gevind word. Bevindings dui daarop dat die gebruik van AVMs vir die waardasie van kommersiële eiendom steeds in die ontwikkelingsfase is en kan nog nie as lewensvatbaar beskou word nie. Die grootste beperkende faktor is dat kommersiële markte baie heterogeen is. AVMs bied verskeie voordele bo tradisionele waardasiemetodes, maar het ook verskeie nadele, wat in die studie geïdentifiseer is. Gestruktureerde onderhoude is gevoer om die opinie en sentimente van kommersiële eiendomswaardeerders teenoor kommersiële AVMs te bepaal. Aangesien geen so model tans in Suid-Afrika bestaan nie, kon geen feitelike opinie of ervaring verkry word nie. Die algemene houding teenoor AVMs was negatief en ‘n klein aantal terugvoere is ontvang wat aandui dat daar wel toekomstige potensiaal kan bestaan. AVMs is ook beskou as ‘n bedreiging tot die waardasieprofessie. Die studie het bevind dat daar wel ‘n plek vir kommersiële AVMs bestaan, alhoewel op ‘n beperkte basis en dit kan verbeter word deur die kombinasie saam met tradisionele waardasietegnieke. AVMs sal nooit tradisionele waardeerders kan vervang nie, maar kan wel as ‘n handige ondersteunende of ouditinstrument gebruik word.