What is an AVM?

Automated Valuation Models (AVM’s) have assisted lenders and other real estate professionals in recent times. We live in an “I Want It Now” era. An AVM would satisfy those folks who require immediate results but the conclusions can be very problematic. AVM’s are computer generated statistical data concerning values within a certain region. With a click of your computer, results are almost instantaneous however these estimates of value can vary greatly in overall quality, scope and detail.

On the surface, AVM’s may try to emulate an actual appraisal however it cannot replace the work completed by a human appraiser. AVM’s do not work well in those regions that there is a wide vary and mix of unique homes, areas that do not experience numerous sales and locations that lack property information.

Key drawbacks from AVM’s

In most cases, the appraiser is the eyes and ears for their respected client. A computer can’t determine if the property is actually physically present within its set of boundaries, overall style, condition and other social, economic and cultural variables that come to play within the appraisal process.

AVM’s are unable to quantify what specific features within a property may benefit or deter from the overall market value.

Many valuation models place heavy weight on the property assessment value, which may only be required every two to three years. This may not represent current market conditions either in a declining or developing market.

Another key variable is that the system cannot filter comparable properties as to why they may have sold. Numerous questions are difficult to answer, such as: what levels of motivation were at play? Was the property sold under duress? Did an individual overpay for a property just to reside in a specific neighborhood? Is the sale at arm’s length? Appraisers often identify these elements as an “arm’s length transaction”.

AVM’s are unable to accurately reflect current market conditions. A downturn in the economy could be overlooked and more importantly overvalued by an AVM!

The next time you require any valution advise, it is recommended that you hire a qualifed and independent appraiser. Rest assure that we are licensed and designated members that work exclusively in real estate valuations and know our markets extremely well.