An AVM is an automated valuation model. They provide quick property value estimations based on mathematical modeling and database information.
Should I trust an AVM?
What if I told you we should list your home for somewhere between $736K and $864K and we would have a 50/50 chance of selling it in that price range? Would you hire me as your agent? Would you have confidence in the information I provide you? Most likely not!
Why do so many sellers insist on believing AVM when places like Zillow admit to an 8% error rate with only 50% homes selling within the predicted range.The evidence could not have been clearer when on February 29, Zillow CEO Spencer Rascoff sold a Seattle home for $1.05 million, 40 percent less than the Zestimate of $1.75 million shown on its property page a day later.
Valuing Our Possessions
We as humans can often make the mistake of overvaluing our possessions. We will find a reason why what we own is better than what everyone else has. However, pricing your home correctly the first time can be critical. AVMs are designed to provide a quick, high level evaluation of a home but if used for pricing can have a negative impact for the seller. They can cause a seller to leave money on the table because they are priced too low, have a house on the market for longer than desired, or worse, be priced so high a price reduction is needed that will mostly likely cost the seller anywhere from 10%-20% in lost proceeds. A reduction in price is a red flag to most buyers and they will think there is something wrong with the property.
Why are AVMs not reliable?
AVMs do not take into account things like micro location, schools, upgrades, neighborhood nuisance issues, proximity to shops, privacy, amount of stairs, neighborhood stigma, etc. All these things matter when pricing a house.
Pricing a home is a science
Pricing a home involves a lot of moving pieces. A good comparative market analysis (CMA) done by a professional Real Estate agent can take hours. The purpose of a CMA is to provide a range of value for a subject property a seller wishes to sell or even a property a buyer wishes to buy. Once this range is identified the CMA can further help the seller in identifying an asking price for their home or help a buyer identify an offer price for a property.
The process of developing a complete CMA involves previewing the subject home and other competitive homes in the area, analyzing the last 3 to 6 months of comparables, making adjustments for differences in comparable properties (i.e. 3 vs 4 beds, room addition, upgrades, etc) and reviewing market trends in the subject property’s specific price range and market, etc.
A Critical Component
A CMA can only be done by a licensed real estate professional and can be used for loan modifications, value trend analysis, mediation and negotiations. A CMA provides the reasoning and data to help sellers see not only the value of their home but why that value is accurate. The Realtor code of ethics has an entire Article 11 which discusses the obligations and requirements of a Realtor when preparing opinions of real property value. It makes clear the importance of competency. In the end, machines have not caught up enough to be able to perform AVMs to match the level of competency of a professional CMA!