Things an Automated Valuation Model (AVM) 

or Non-Appraiser Valuation Doesn't Do or Won't Tell You

 

Lenders and brokers using Automated Valuation Models (AVMs) and homeowners using "free online home values" such as Zillow.com to determine the value of a property need to know what those results are not taking into consideration. These types of automated services CANNOT tell you: 

Whether the house is really there or not. A computer can't drive by a house to see if it's actually located where it's supposed to be. It can't tell whether it has four walls and a roof, or if it's really a four bedroom split level and not a one bedroom shack. This is particularly true in fire-prone areas.

 

Whether unique features of a property might add to or detract from market value. Let's say a computer returns an estimated value of $150,000 for the property. Did it account for the sewage treatment station next door? The railroad tracks nearby with trains that blow their whistles every night? The high voltage power lines in the back? The school district? The desirability of its tree-lined street versus the next street over? The granite counter tops and newly remodeled bathrooms?

 

How long ago the property was assessed. Many AVMs and free online services rely on public assessment records. In many states assessments may only be required upon a sale or every 10 years — the value may be completely outdated in that case.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 what may actually be the true fair market value.

 

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 development, fronts a four-lane, 55 M.P.H. street, and is in a flood zone. Or, what 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 be needed to a "comparable" property's sales price.

 

Whether a market is 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 model.

 

Whether there is a conflict of interest. Free online home values are often farmed out to real estate agents 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 valued at the high end of what they believe they can sell it for, then you'll be more likely to sign a listing agreement. Do not fall for it!

 

What qualifications, designations, experience and education, if any, the originator of the value has. When you work with a licensed appraiser you can be confident he or she is 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, and they couldn't compare to an appraiser's if you did. If you're relying on an automated valuation you're cheating yourself out of an appraiser's education, experience and expertise.

 

Please feel free to contact us regarding any questions you may have about automated valuation models or the free on-line house value services. We'll be glad to take a look at any results you find and give you our professional opinion with absolutely no obligation.  

 

"Advice is Cheap. Insight is Precious." ™

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