What is an "AVM?"
"AVM" stands for "Automated Valuation Models." It is a term for a service that uses mathematical modeling combined with databases of existing properties and transactions to create real estate values. Lenders and mortgage brokers using AVM's and homeowners using "free online home values" sites (Zillow is an example) to determine the value of a property need to know what those results aren't telling them. Here are 7 questions that an AVM can't answer:
Is the house is really there? A computer can't drive by a house to see if it's actually located where it's supposed to be, has four walls and a roof, and really is a split level and not a one-story ranch.
Are there unique features of a property might add to or detract from market value? So a computer returns an estimated value of $250,000. Did it account for the sewage treatment station next door? The four-lane busy road it is adjacent to? The fact that it backs up to a golf course? These things all impact the value of a property.
How long ago was the property was assessed? Many AVMs and free online services rely on public assessment records. In many states, for example, assessments may only be required every three years — the value may be nearly three years old in that case. Some states mandate that an assessed value not increase beyond a certain percentage, even if sales activity indicates the property has appreciated far more. When you use an AVM or free online service, you risk a lower value than reality.
What makes the "comparables" comparable? A computer might compare your subject property to another property with similar square footage sold three months ago a quarter of a mile away, even if that "comparable" property is in a different, less desirable school district, fronts a busy, four-lane street and is flood-prone. Or, even if the property was sold under duress, such as in a divorce situation, or not at arm's length, such as to a family member. A computer simply does not know all the adjustments that might need to be made to a "comparable" property's sales price.
Is the market appreciating or declining? Automated valuations use data from recent, nearby sales. If those sales were completed at the peak of a local housing market, the computer will think the trend is going up, even if a professional appraiser knows that the overall neighborhood is beginning to experience a downturn. As a lender, don't get stuck with a property that's been overvalued by a computer.
Is there a conflict of interest? Free online home values are often farmed out to real estate agents in your area, who use the service to get your listing when you decide to sell. The best way to do that is to impress you with their confidence that they can get a higher price for your property. If they tell you your property is "worth" the high end of what they believe they can sell it for, the theory goes, you're more likely to sign a listing agreement. With most things, it's best to "under promise and over deliver" — but the opposite is true when you use a free online home value service.
What qualifications, experience and education does the preparer of the value have? When you work with Bobkat Appraisal Services, you can be confident we're licensed, highly qualified, ethical and prepared to complete your assignment professionally and with good judgment. Most of the time, you don't know the qualifications of whoever is behind those free online values. So, if you're relying on an automated valuation, you're cheating yourself out of an appraiser's education, experience, and expertise.