What is an automated valuation model? An automated valuation model (AVM) is way to a value property without using an appraiser. To keep it simple: providers of AVM’s have been collecting data about real estate which includes property tax information, prior sale information, property characteristics, data about recent sales nearby etc. In addition to this the AVM providers add statistical analysis which is more complicated than I can delve into here. So when you click on a website giving you a home valuation you are getting an estimate based on an AVM. When you go to Zillow and see what the “zestimate” of a particular property is – that estimate is based on an AVM. Sometimes in the loan process a lender will waive the appraisal – that is because they have sufficient information from an AVM telling them that the purchase price is reasonable and they can feel safe making a loan on the property.

What are the downsides to an AVM? The major downside is that the computer in sky which generates the AVM does not really have adequate information about the unique nature of your property – this includes attributes like condition, upgrades, and special features like a secluded back yard or a special view. In addition AVM’s try to predict the market based on statistical models but there is no way they can replace the information a real estate agent with “boots on the ground” in the real market can provide.

It’s important to note that although AVM’s can be a good guide for the value of your home it’s never going to be as accurate as an actual appraisal or a market estimate provided by a real estate agent. There are two differences between an appraisal and a market estimate. An appraisal is completed by a licensed real estate appraiser and is based on actual closed sales most comparable to your home. An appraisal is an estimate of value based on a moment in time. An market estimate from an experienced real estate agent is different because real estate agents will take into consideration current market conditions, number of available listings, typical days on market, etc to determine a reasonable listing price for your property. There are different strategies for pricing property and your agent can help you determine which strategy best suits your needs. A good real estate agent will be able to provide you a market estimate free of charge and should keep you up to date on the value of your property on a yearly or semi-annual basis.

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