Katrina recovery program burned by AVMs; “Road Home” will use appraisals instead

The use of Automated Valuation Models (AVMs) to calculate property damage in hurricane and flood ravaged New Orleans was recently discontinued, with government officials conceding the AVM values were often drastically off the mark. In most cases pre-storm appraisals will be used instead, a "shift [in] emphasis from computer-generated assessments to traditional appraisals by people," reported the New Orleans Times-Picayune.

A private company administering the Road Home program, a $7.5 billion aid program for owners of flooded homes, relied on AVM calculations of pre-storm value. It switched course last month amidst pressure from state and local officials. The use of AVMs was "not correct for a city with neighborhoods as diverse as the greater New Orleans area," State Representative Tim Burns said.

Values will now come from recent appraisals, a federal financing database or appraiser archives, reported New Orleans City Business.

At a pre-Christmas meeting with ICF Consulting, the company coordinating the Road Home program, "legislators were incensed at letters to their constituents offering minimal compensation, which ICF representatives now acknowledge may have been incorrect," Burns said. "ICF had based the awards on the use of an automated valuation method to calculate pre-storm fair market value using a set formula that is applied to a dwelling based upon its square footage."

The program is also reducing reliance on Broker Price Opinions (BPOs).

According to ICF's SEC form 8-K, filed in October, it had planned to use a $12 AVM or $85 BPO by default, and a URAR only "if neither the AVM nor the BPO [was] successfully completed." The Times-Picayune editorialized:

[AVMs and BPOs] are high-volume, low-cost methods, and they may have helped speed up the grant process. But if the results are wrong, that's not an advantage, and it's a shame that no one realized their limitations ahead of time. An unfairly low offer could be the final straw for a family trying to decide whether to stay and rebuild or leave.

Challenges like these may yet bring to light the limitations of AVMs — and the superiority or professional appraisals — to the wider public.