About AVM's (Automated Valuation Models)

Here are Seven things an automated (non-appraiser valuation) won't tell you:

Lenders and brokers who use Automated Valuation Models (AVMs) and homeowners using a "free online home values" to determine the value of a property need to know what those results aren't telling them, and so some important points that they may be missing.

1. Is the house really there?  Obviously a computer is not able to drive by a house to see if it's actually located where it's reported to be, has four walls and a roof, and really is a four bedroom split level and not a one bedroom ranch.

2. Are there unique features for a property that would add to or detract from market value?  Let's say for example a computer returns an estimated value of $150,000. Did it take into account the sewage treatment station next door?  Did it know about the railroad tracks nearby with trains that loudly blow their whistles each night? And what about the school district?  Does it find that the home is located on a desirable tree-lined street vs. the empty street just north of it?

3. How long ago was the property assessed?  Many AVMs and other free online services rely on information from public assessment records. In many states, assessments may be required only every three years and in that case the value may be nearly three years old.  Some states carry a mandate that an assessed value not be increased beyond a certain percentage, even if sales activity indicates the property has appreciated far more.  When using an AVM or other free online service a risk is taken that the value given is actually lower than what it should be in reality.

4. What makes comparables comparable?  A computer could compare your subject property to another property with a similar square footage and sold three months ago a quarter mile away.  However, if that "comparable" property is in a different, less desirable school district, faces a four-lane, 55 M.P.H. street, and is in a flood-prone area.  Or perhaps the property was sold under duress, such as in a divorce situation, or not at arm's length, such as to a family member at a low price. A computer simply does not have all the information for the proper adjustments that should be made  to a "comparable" property's sales price.

5. Is the market declining?  Automated valuations use information from recent, nearby sales.  If those sales were completed at the high point of a local housing market, the computer will "see" the trend is going up which may not be the case.  A professional appraiser would know that the overall neighborhood is at the beginning of a downturn. As a lender, don't get stuck with a property that's been overvalued by a computer.

6. Is there a conflict of interest?  Free online home valuations are often given 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 will be able to get a higher price for your property. If they inform you your property is "worth" the high end of what they believe it could be sold for, the theory goes - you're more likely to sign a listing agreement. Normally with most things, it's the best idea to "under promise and over deliver" — but the opposite is the case when you use a free online home value service.

7. What qualifications, experience, education and designations does the preparer of the value have?  When you work with our appraisers you can be sure that we're highly qualified, ethical and able to complete your assignment professionally and with good judgment. Much of the time you aren't able to tell the qualifications of the person who is behind free online values, and they wouldn't compare to our appraiser's if you did.  If you're relying on an automated valuation, you're cheating yourself out of an appraiser's education, experience, expertise and possibly true value of your home.

At Colorado Appraisals we can provide you with an accurate and professional home valuation, which could save you a lot of time and money in the long run.