What is an "AVM"?

To begin, an “AVM” stands for an Automated Valuation Model.  As “AVM’s” relate to real estate, they offer an automated way for anyone to help determine how much a particular property is worth. 

AVM’s use several different elements of data which include mathematical formulas, property characteristics, recent sales data, and local market information – and more, to produce a “range of value” for a particular property.  Additionally, AVM’s also rely upon information and data that is provided by other sources such as public records and local multiple listing service data feeds.    

Have you visited a website that used an AVM and inputted your address to determine what the value is?  Often, some people think the values for their property are too low.  Sometimes the value may seem too high.  Most often, AVM’s present a “range of value”; a low end of the value range and a high end.  Rarely, though, are the values of AVM’s accurate.  Why?

AVM’s make several assumptions about properties.  For example, AVM’s assume all properties are in the same or similar condition in a particular neighborhood.  AVM’s are not aware that your home may have just had an extensive renovation in the kitchen and bathroom or that you recently finished the bonus room over the garage.  So, this, in part, explains the disparity that may exist between what the AVM presents as market value and your own opinion.

There are mortgage lenders who rely upon AVM’s to establish market value for lending purposes.  Recently, I represented a property that sold.  The buyer applied for their mortgage and the lender did not send out a real estate appraiser to determine the value.  The lender relied upon an AVM to establish the range of value.  This is due, in part, to the fact that the mortgage amount was less than half of the purchase price.  So, I assume the lender felt it was cost effective to rely upon an AVM to establish the market value rather than incur the expense of hiring a real estate appraiser to personally establish the market value.

Some AVM’s provide a “confidence score” in addition to the range of value.  A confidence score is a number which you can have “confidence” in the range of value they provide.  The higher the confidence score, the higher the reliability of the range of value they provide, and the opposite is true.  The confidence score is calculated by the number of homes sold in a neighborhood.  The higher number of sales in a neighborhood, the higher the confidence score.  Again, the opposite is also true.

Getting back to the question “why?” aren’t’ AVM’s accurate.  Beyond what I have previously described, the fundamental answer is AVM’s are not intended to be accurate.  They are, in part, intended to confuse.  Various websites that host AVM’s want you to contact them so an agent can perform a market analysis rather than you be satisfied with the automatically generated value.

Experienced real estate brokers offer several advantages in determining market value.  Real estate brokers use market trends and personal knowledge of the market and experience in determining market value.

For most people, their home represents the most valuable asset they own.  If you are considering placing your home on the market, contact an experienced and competent real estate broker.  That person will help you understand and determine market value and interpret the dynamics of the real estate market.  If nothing else, you’ll receive piece of mind.  After all, piece of mind is priceless!