Our engineering team has been busy with a comprehensive overhaul of the algorithm used in our online valuation tool, Homeflow Valuation. Automated valuations are much talked about, so we asked the team to explain, in layman’s terms, how the valuation for any specific property is reached.
Without going into all the the details of, for example, the data sources, we hope this explanation helps you understand the maths behind the valuation tool.
Firstly, a list of matching sales are acquired, which are grouped into six groups using all the combinations of the following two criteria.
(1) Recency of sale:
- Recent sale: Less than 10 years ago
- Old sale: More than 10 years ago
(2) Strength of sale match:
- Exact match: Same postcode & Same PAON (Primary Addressable Object Name, basically number or name of property)
- Postcode & Type match: Same postcode and same building type. Options for building type are flat, terrace, semi-detached, detached and other
- Postcode match: Same postcode
We inflate any previous sale price up to modern day values by multiplying it by an inflation multiplier specific to the postcode area (e.g. ‘BN’), where we have it, or using a national inflation multiplier if we don’t. The inflation multiplier is calculated by obtaining an average price of all sales in the relevant area for both the month of the sale and the last full month of data we have. We divide the last month’s price by the sale month’s to give us the multiplier.
Once all sales are inflated to a modern day figure we calculate an average price for each group.
We then come up with our valuation by combining the group together with the following weightings:
- Recent + Exact: Weight 1500
- Recent + Postcode & Type: Weight 500
- Recent + Postcode: Weight 50
- Old + Exact: Weight 15
- Old + Postcode & Type: Weight 5
- Old + Postcode: Weight 0.5
So for example if we had a recent postcode match average price of £100,000 and an old exact price of £200,000 the calculation would be
(100,000 * 50) + (200,000 * 15)
(50 + 15)
Which comes out to £123,077
If the user has provided a list of similar properties, we also average the calculated price and the average list price of those similar properties.