Clicks and Mortar

A Real Estate Blog - Est. 2009

What exactly is an AVM?

Posted on 27, June 2011 by csadmin

An Android-Vulcan Marriage? No, but Spock’s parents would be so proud. All-Natural Venison Meals? Of course not. We heart Bambi. Average Vampire Movie? Wrong again, my blood-sucking friend.

AVM is actually an acronym for Automated Valuation Model. An AVM is a statistically based computer program that essentially pulls in real estate information- recent comparable home sales, property characteristics, tax records and assessments, and overall pricing trends - and spits out an estimated value for a property.

Perhaps the most famous of AVMs is Zillow’s Zestimate where they attempt to put a value on all homes in the United States - whether for sale or not. The Zestimate is so well-known (or maybe the word is notorious) that it’s even integrated into as part of the user’s net worth calculation.

Lenders have been using AVMs for years to help streamline the mortgage process and to help improve risk management and have gotten much better over the years. They are faster, cheaper, and more objective than any human appraiser could be, but they are certainly not without limitations. The AVM is only as good as its data and when the tax record information or sold data is inconsistent, inaccurate, or untimely, then values can vary wildly. Even when the data is comprehensive, AVMs can come up short. They cannot be used to determine the condition of the property (which can greatly impact the home’s value) and may also incorrectly compare two homes with dissimilar views. Think a home with a view of a clown museum isn’t worth less than the same house with lake view? Think again. Clowns are creepy. When items like these are missed, the resulting home value estimate can be deceptive and costly to everyone involved - especially future homeowners.

Remember kiddos, Zestimates are like Zimas. Use both in moderation and you’ll be happy with the results. But rely too heavily on either and the results could be messy and leave you with a nasty hangover.

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