What is an AVM’s Forecast Standard Deviation?
The Forecast Standard Deviation (FSD) denotes confidence in an AVM estimate and uses a consistent scale and meaning to generate a standardized confidence metric. The FSD is a statistic that measures the likely range or dispersion an AVM estimate will fall within, based on the consistency of the information available to the AVM at the time of estimation. If you think of an archery target with the AVM estimate as the bull’s eye, the FSD tells you into which ring around the bull’s eye the actual value of a property is likely to fall, as shown in Figure 1.
The FSD can be used to create confidence that the true value has a statistical degree of certainty.
Because statistical certainty is rare, a confidence interval is used to indicate the level of statistical certainty associated with an FSD. In this case, a confidence interval of 68 % is used, meaning that one can say with 68 % statistical accuracy that the true value lies within the upper and lower values. If for example, an AVM returns an estimate of $100,000 with an FSD of 10, one can say with 68% statistical certainty that the value lies between $90,000 and $110,000. If the FSD is 30, one can say with 68 percent statistical certainty that the actual value will be somewhere between $70,000 and $130,000. Clearly confidence is lower on the AVM estimate with the higher FSD, as shown in Figure 2.