7 things an automated or non-appraiser valuation (AVM) won't tell you
AVMs have their place but lenders and brokers using Automated Valuation Models (AVMs) and homeowners using "free online home values" to determine the value of a property need to know what those results aren't telling them.
- Whether the house is really there. A computer can't so much as 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 four bedroom split level and not a one bedroom shack. It can't tell if a house has been remodeled or needs extensive work. I recently received an assignment to appraise a house that, unknown to the lender, had burned to the ground. Imagine their surprise!
- Whether unique features of a property might add to or detract from market value. So a computer returns an estimated value of $150,000. Did it account for the sewage treatment station next door? The airport runway across the street? The railroad tracks nearby with trains that blow their whistles every night? The school district? The desirability of its tree-lined street versus the next street over? The new pool? The recently finished basement? Are any of these things affecting the comparable sales used?
- How long ago 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 or even less — the value may be nearly three years old in that case. Some states, like Georgia, mandate that an assessed value not increase beyond a certain percentage, even if sales activity indicates the property has appreciated far more. The assessment may be too high if the subject property is close to otherwise similar property on, say, a very popular lake or golf course while the subject is not. When you use an AVM or free online service, you risk a lower or higher value than reality.
- What makes the comparable sales 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 four-lane, 55 M.P.H. 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.
- Whether a market is declining or increasing. Automated valuations use data from recent, nearby sales. If those sales were completed during a period of higher prices or at the peak of a local housing market, the computer will think the trend is going up and may report a higher than actual value even if a professional appraiser knows that the overall neighborhood is beginning to experience a downturn or , perhaps, an upturn. Don't get stuck with a loan on a property that's been overvalued by a computer or setting a sale price on a property that's been undervalued by a computer.
- Whether there is 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 often true when you use a free online home value service.
- What qualifications, designations, experience and education the preparer of the value has. When you work with Whitworth Appraisals, you can be confident we're 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. And if you're relying on an automated valuation, you're cheating yourself out of an appraiser's education, experience and expertise.
- Example: Seven AVMs were consulted regarding the value of my house on 11/20/2021. Each provided a different value. The indicated values for my house ranged from a low of $70,200 to a high of $226,574. which one is right? You choose at your own risk.