Home > Tech > Expert Contributor

Automated Valuation Models and Real Estate Pricing In Mexico

By Mario Gamboa - Intelimétrica
CEO

STORY INLINE POST

By Mario Gamboa | CEO & founder - Wed, 08/24/2022 - 13:00

share it

Whether you need to buy or sell a real estate asset, the first thing you need to do to complete a successful transaction is to understand its true value. In a very dynamic economy, it is now imperative for real estate developers, realtors, proptechs, and the mortgage banking industry to quickly and accurately determine the asset's value.

There are a number of conventional valuation models capable of assessing these assets' value but only a few of them can do it on an efficient and massive scale. One such tool is a technology called Automated Valuation Models (AVMs).

AVMs are tools used in statistical modeling (and now with machine learning and artificial intelligence techniques) to appraise real estate. Using artificial intelligence and machine learning, AVMs determine the market valuation for a given asset based on its observable attributes by synthesizing information on comparable assets.

AVMs serve a variety of purposes. The most common include determining the market value of a real estate portfolio, establishing pricing and marketing strategies, tracking the evolution of market dynamics and updating loan-to-value metrics of entire mortgage portfolios. The technology helps the real estate industry achieve far better and much more accurate outcomes free of biases and personal judgments.

Intelimétrica's AVM Model features by far one of the most comprehensive databases in the Mexican real estate market, allowing it to constantly recalibrate and improve the accuracy of its models. Its patented proprietary algorithms were originally constructed from multiple sets and hundreds of “meta models,” which have been coded to independently determine the best models to apply, from hundreds of specialized models, for a particular application scenario.

Novel-Use Cases

Having dealt extensively with various partners throughout the Mexican real estate market, we have seen that in an ordinary year, an asset tends to appreciate, on average, about 5 percent to 10 percent. However, these price increases do not occur evenly across geographies, types of assets and throughout time.

Rental rates and sales values are constantly changing, and when extraordinary circumstances take place, these changes are amplified. As an illustration, during the COVID-19 pandemic, which struck in 2020, real estate prices started to fluctuate outside the ranges observed in the past.

Based on an analysis leveraging Intelimétrica’s automated valuation models, Mexico City’s middle-income homes (houses and apartments) had accumulated over years price increases totaling 24 percent by the end of 2018. However, from 2019 through March 2021, there was a trend reversal that resulted in an accumulated 10 percent price decrease. Finally, from mid-2021 to July 2022, the prices recovered from their low values and even registered moderate price gains, depending on the location in Mexico City.

AVMs also indicate that during the 2020-2022 period, prices of apartments in Guadalajara and Monterrey increased by about 40 percent and home prices grew by more than 20 percent.

Automated valuation models are able to obtain these estimates in a matter of seconds, by assessing property values and running hundreds of thousands of scenarios in real-time. Banks use this technology to enhance and streamline their mortgage loan underwriting process. The amount of time saved by AVMs compared to more traditional processes is staggering. AVMs can accurately value a large number of assets within minutes, creating better customer experiences and accelerating the generation of insights. This ultimately enhances bank competitiveness, making them far more resilient to the challenges posed by a changing business landscape and from fintech and proptech companies.

Digitalization is here to stay. The data generated by AVMs and the accuracy and speed of their estimates offer a competitive advantage in real estate transactions and processes. Appraisals continue to be at the center of real estate but they can be enhanced by including data and algorithms to bring new features to the underwriting of construction loans and mortgages. The technology is already widely available; we should continue to use it and apply it to a larger set of use cases.

Photo by:   Mario Gamboa

You May Like

Most popular

Newsletter