October 28, 2020
By Paul Bubny
On Oct. 28, Valbridge will introduce an online automated valuation service branded as Valnow. This AVM generates a value snapshot for a single commercial property or an entire portfolio. Connect Commercial Real Estate spoke with Valnow creator Burton Lee, MAI for a behind-the-scenes preview.
Q: To begin, what is Valnow and how will it be used?
A: Valnow is an online service that instantaneously develops a commercial property real time CRE valuation. This big data application utilizes artificial intelligence and machine learning to estimate value. A single point value and a value range are provided with each analysis. Lenders can use this type of analysis for existing loan collateral monitoring, for new loan transactions that are below de minimis values, and for extending lines of credit. There are a variety of other user types who can benefit from this low-cost check-in on value: asset managers are able to update portfolio values; brokers are able to provide additional credibility for or even replace a BPO; and investors contemplating a transaction can evaluate a properties potential.
Q: How is the data behind Valnow derived?
A: The data is one of the essential elements of our ability to do an exceptional job in estimating value. The nucleus of the data comes from the 78 Valbridge offices across the country. The data is appraiser verified and, from our perspective, the highest quality data available. Like any analysis, the quality of the data drives the quality of the results, and with the quality of the data that we have, we can achieve exceptional results.
Valnow focuses on office, retail, industrial and multifamily property types. Some of the sub-property types within these property types, are not available for analysis. For example, we are not performing analyses on self-storage properties. We are not valuing regional malls. We are not valuing auto dealerships. Narrowing our focus to the most common property types, results in the highest quality real time CRE valuations.
Q: How is a valuation generated?
A: When a user wants a valuation, they go to val-now.com, they register, then there are some questions that are answered about the property that they want to have analyzed. The questions fall into two general categories, physical characteristics, and financial characteristics. The user input is validated by the user prior to the analysis. Once the user input is validated, the analysis is performed.
As with any valuation process, the more data that can be provided, the better the quality of the results. Our confidence score goes up the more data fields are entered. That’s one characteristic that’s really important in distinguishing the Valnow AVM from many residential AVM models. Many residential AVMs rely on their internal data set for subject property characteristics as compared to the Valnow AVM which uses current subject property information from the user.
Q: Talk about the confidence score provided with a Valnow analysis, and how you arrive at it.
A: When a user goes to our website, the entire process is completed online. The analysis is performed, and simultaneously we perform a secondary analysis to develop a confidence score which is an indicator that represents the statistical reliability of the Valnow predicted value. The artificial intelligence algorithm used to develop the confidence score studies the influence of each property characteristic on the variance between the predicted value and the real valuation. Depending on the importance of the features, the number of transactions, and the actual deviation a confidence score is produced that reflects a certain confidence on the prediction.
We provide the confidence score to the user for the user to determine whether the confidence score is sufficient to solve their problem. This is all before any payment. When the confidence score is adequate to address the user’s problem, payment is applied, and the valuation report is provided.
The confidence score is presented as a percentage. The confidence score percentage is displayed within a scale of A, B or C. Category A is a confidence score of between 88% and above, Category B is between 75% and 88% and Category C is between 65% and 75%. If Valnow is unable to achieve a confidence score of at least 65%, we do not provide a value conclusion. We basically say, “We don’t feel confident that we can provide a value that meets our minimum standards.” When the confidence score is below 65%, we stop and there is no charge. Otherwise, the user is provided the confidence score prior to paying for the analysis. The user determines the appropriate confidence score threshold for the valuation problem they are trying to solve.
A: We believe that investors and owners, particularly those who are involved in the day-to-day operations with their property, have the opportunity to receive an analysis of the value of their property.
Q: Who are some other potential users? Attorneys, for example.
A: Attorneys can use the service as a check on value. Accountants could use the service when they need to report a current value. If a tax consultant is looking at a group of properties to determine the difference between the assessor’s value and the value for the market, they might look at this analysis as a first indicator as to how to proceed.
Q: Was Valnow created in response to the COVID-19 pandemic or has it been in process for a while?
A: We have been working on this project for two and a half years, putting together the right combination of resources 1) getting the data right, 2) getting the technology right, and 3) refining the analysis to provide exceptional value for the service that we offer.
Q: While Valnow was in development for quite some time prior to the pandemic, what are some ways in which it could be especially useful during the current circumstances?
A: Lenders could use the AVM analysis to quickly check the underlying value of their assets in a cost-effective manner. When CRE markets are experiencing rapidly changing demand, values tend to decline as a result of market uncertainty. Appraisers could use this as a check on value or it could be incorporated into their thinking about value. There is some discussion of this type of analysis becoming a fourth approach to value.
It is important to understand that the result of the Valnow analysis is not an appraisal according to the Appraisal Foundation’s USPAP definition of an appraisal. However, it could be incorporated into an appraisal analysis. One of the distinctions between this type of valuation and a traditional appraisal valuation is that for this analysis, a trained appraiser is not providing localized market expertise, property data, nor is the appraiser applying property-specific judgment.
Q: Did these discussions of how Valnow might be used predate the pandemic, too?
A: The concept of an easy to use, fast, low cost value estimate predates the pandemic. Lenders have been looking for this type of service. The need for lenders to validate collateral values has was a requirement before the pandemic. There are property types and market sectors where the market is performing better than before the pandemic and other sectors that are not performing as well. During this phase of the market cycle, it is difficult to understand the status of a particular property. The idea of looking at the broader picture of an entire portfolio might be more beneficial now than it would have been in a more stable CRE market environment.
Q: In your discussions with lenders, what has been the response? Do they see the value proposition?
A: Lenders are looking forward to using Valnow. The level of interest from the parties who are aware of this service is extremely high. Even before we began working on the project, there were requests for this type of analysis. In particular, for those transactions that were below the de minimis, there was a need to do some kind of valuation, but lenders wanted to do it as quickly as they could and as economically as they could in order to understand the relationship between a requested loan and the value of the loan collateral.
Q: Tell us about the pricing structure for Valnow.
A: A user goes onto the site, logs in, enters the information, the valuation is generated, the confidence score is offered up, and if the confidence score meets their needs, then the valuation is purchase and the report is provided. The price ranges from $250 per analysis to $500 per analysis depending on volume discounts. There is an introductory special where a single analysis may be performed for $300.
Q: How can our readers learn more?
A: To learn more, go to val-now.com, post an inquiry to firstname.lastname@example.org, or contact a local Valbridge office.
For comments, questions or concerns, please contact Paul Bubny