If you have been tracking the progress of RPR, you are aware that we have a twofold mission: to provide a comprehensive database of property information to REALTORS®, and to produce authoritative valuation analytics under the REALTOR® brand. These two goals are obviously interconnected. I write today to give you a progress report on the second objective.
Our “flagship” product, the Realtors Valuation Model® (RVM®), launched in October 2010, at the Mortgage Bankers Association annual convention. In conceiving the RVM, we set out to develop an analytic that would have three, key characteristics:
- Highest accuracy of any product available in the market
- Owned and operated by the members of the National Association of REALTORS®
- Incorporating the skills of REALTORS® through their listing content, reflecting the expertise of their work with customers, on a fully-authorized basis
We are very pleased with how far we’ve come in each of these dimensions. I’ll review them for you in detail:
Even before the “official” launch of the RVM, testing began in the major lending and government institutions that would ultimately represent its “target” market, to ensure that it lived up to its promise of a high degree of accuracy. Representative test results are below:
Major lender Q42010 testing. All results are to scale, but competitor names have been obscured at the request of the lender.
What this chart reflects is that of all of the automated models tested by this particular major lender, the RVM is the most accurate in its ability to predict the purchase price of a residential property, as well as the appraised value of a property in refinance.
“Accuracy” in this context refers to the percentage of estimates that are within 10% of these two benchmarks. While 10% is a notable range, it is adequate for the purposes AVMs are applied to – typically in equity lending – and this is the standard used by lenders, servicers, and investors. Increasingly, we also see AVMs used for what financial institutions call “quality control” – which is to say, confirming the results of other valuation products.
The important context here is that at this moment in our still very uncertain economy, as William Goldman once famously said about a different industry: “Nobody knows anything.” In the current housing market environment, this means that lenders, investors, and government agencies are challenged as never before to understand the real, present value of the assets they hold – so they are buying more of every product they can to check, cross-check, and triple-check their math. This is good news for REALTORS®, upon whom the institutions have always relied for two of three, key types of valuation products – appraisals and BPOs – and now, with the RVM, they can rely on NAR’s members for a third category, automated valuations.
The RVM is not the only automated valuation product that incorporates listing content, but it is the only one owned by REALTORS®. This is an important point because lenders rely on automated valuations to make decisions that ultimately impact the overall health and liquidity of the housing marketplace, which affects your prosperity, and the condition of your clients.
Some competitive valuation models use listing content that has not been authorized for this purpose, provided by parties who are not entitled to sell it. In simple terms, this is theft – a misappropriation of the intellectual property you create through your contracts, resold to third parties without your authorization.
Beyond the moral issue, there is the question of the accuracy, completeness, and timeliness of this purloined listing content. Because certain aggregators, Web site vendors, or MLS users with shared passwords are generally the source of it, it is not always updated regularly or completely, thus skewing the view of the inventory that is being provided. So to the extent such content then ends up being sold to financial institutions that then use it to make decisions about loans and transactions, the “collateral damage” (sorry for the bad pun!) compounds the question of misuse, creating even greater harm to all of the parties in a transaction.
Of course, not all of the actors are bad, and generally it can be said that the banks that purchase listing data in this “gray market” do so based on representations from the providers that they are authorized to resell it. But the simple and unambiguous fact is that as a REALTOR®, this is your data, and you should be involved in ensuring what it is being used for, and by whom – particularly in cases that can affect the flow and efficiency of your transactions.
Impact on the market
The RVM® is a component of a Grand Strategy – one that will not take shape overnight, but can nonetheless have a consequential impact right away. Better automated valuations represent one, short-term outcome. Heightened awareness of the unintended consequences of listing re-syndication is another – beneficial no matter what. The connections to the rapidly evolving housing policy and regulation debate – much of which is focused on who will be at the center of housing asset valuations going forward – could not have been predicted when we first set out to build the RVM® – but they have never been more important.
In some ways it seems to me, as a strictly personal observation, that the entire basis of our housing market is being challenged now as never before – the institutions, the practitioners, even the question of whether homeownership itself is a goal we should set for our society, to any significant degree. We know from the high level of engagement that exists throughout our industry in such discussions (and from human nature) that how they get resolved will ultimately be a function of two forces: politics, and information.
The RVM plays a narrow role – one that is squarely and exclusively in the latter category. But I can report to you that having observed firsthand the eagerness with which the financial institutions with which we interact have embraced the concept of the product – and then been very impressed with the results, on top of that – should give us all good cause for optimism about the role it can play.
More importantly, the fact that the RVM is owned by REALTORS®, and based on the work of REALTORS®, and provided under the REALTOR® brand, is what gets the market’s attention in the first place. The name is credible when much else is uncertain, and it amplifies what would, under circumstances, just be a product with excellent results. While this is only a beginning, and there is a lot of work to do, it is a start that we hope will make you proud.