The standards launched this week by EAA set up, for the first time, a classification of the main types of statistical valuation and provide a further analysis of its suitability for the different uses and of how the lenders, investors and regulators should evaluate the results of each method.
The release of the standards by European AVM Alliance (EAA) is a significant milestone with the aim of a greater transparency for lenders, investors and regulators in Europe, in the calculation of market value of residential property used as security for mortgage debt.
So far, the time and cost of updating valuations for large residential properties portfolios has been the major barrier to obtain greater transparency over loan-to-value ratio of the asset in mortgage portfolios, whether held on lenders’ balance sheets or within asset based securities (e.g. covered bonds).
Statistical Valuation Methods eliminate these cost and time barriers, and are used to provide a market value of a specific residential property or track more generally the development of residential real estate markets. Not all statistical methods are suitable for these two primary applications.
Regarding the launch of the Statistical Valuation Standards, Andreas Bücker, Director General of the EAA, says that “the launch of these new standards is an important milestone with the aim of a greater accuracy and transparency for lenders, investors and regulators in the calculation of market value of residential property used as security for lending across Europe.”
“The EAA have recognized the need to publish these standards to improve the understanding of statistical valuation methods, their suitability for specific requirements, as well as to facilitate the interpretation of how users can assess performance and accuracy of the resulting valuation outputs.”
“The Standards provide a starting point. They will be updated regularly, considering feedback from and in consultation with stakeholders, regulatory bodies, and market needs.”