Can AVMs be more Harmful than Helpful?

Automated home value estimates have been a popular tool for real estate search websites lately, and while these tools may satisfy buyers’ needs for quick information, in many cases the information they provide is inaccurate. Although many agents and brokers are aware of the limitations of these models, many consumers are not, and improper use of these tools can magnify price volatility in housing markets and hurt home sales.

Considering the danger that these tools pose, it may be time to start steering consumers away from AVMs.

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Automated valuation models (AVM) are designed to predict a home’s price based on comparing it with similar properties in the area. They do this using county property record data from thousands of offices around the country, comparing several attributes such as square footage, the number of bedrooms and bathrooms, and other features unique to the property. This poses several problems though.

One problem is that this data may not always be up to date. While gathering and updating property records has improved over the years, there are still significant delays of six months or more in the collection of data from some areas depending on the office’s capabilities to update information.

Furthermore, there are great discrepancies in the quality of information captured by these offices. In many cases, the square footage is off or the data is lacking specific characteristics of the property. While these systems may work better for homes of similar type and quality, they can be almost worthless when it comes to custom homes, homes in rural areas, small neighborhoods, and nonstandard property features.

On top of all of this, there is no statistical model that can understand the market and particular condition issues of a specific property. For example, these models cannot factor in upkeep or whether or not the neighbor’s neglected yard is an eyesore.

In forming an offer, a buyer needs to obtain a reasonable view of what a home is worth, and in some cases an AVM may be able to provide this, but in many cases these models are too inaccurate. This is why it’s the responsibility of agents and brokers to know the markets they serve.

What are your thoughts on AVMs? We’d like to hear from you.

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