If you need an estimated valuation on a property fast, an Automated Valuation Model (AVM) is one of the quickest ways to get the information you need. AVMs don’t usually require an appraiser because they are completed by data-analysis software. These reports rely on public records and other information to create a valuation. While they are one of the fastest, cheapest, and most efficient ways to get a value estimate, a real estate AVM still might not be the right option for your property.
AVM vs. Appraisals: How Are They Used?
With an AVM, the core of the valuation is determined using multiple algorithms. The data-analysis software takes into account a property’s physical characteristics, market activity such as sales, listings, foreclosure rates, market trends, and more. It then analyzes all of this information before arriving at a value estimate and delivers the result to you in seconds. Many AVMs include a range of value and a confidence score. Confidence scores are designed to reflect accuracy, so in theory, the higher the score, the more accurate the report.
There are a number of differences between AVMs and appraisals, but one of the most significant might be the quality and quantity of the data. It’s the old adage — garbage in equals garbage out. Although AVMs analyze available data using very complex models, the data being analyzed may not always be current or complete.
For example, the subject property has recently had an addition and now includes a family room and master suite. Plus, the home has not been listed or sold with these improvements, so public records have not yet been updated to reflect the additional living area. With this in mind, it’s easy to see how the information from AVMs can sometimes be called into question.
It’s important to note that AVMs aren’t actually appraisals at all. But the information they provide can still be helpful depending on your needs. If you’re considering purchasing or listing property, an AVM is a good option to gain general understanding of the property, and you can receive the information you need instantly. Many popular real estate websites will also provide a home’s estimated value.
This information is typically based on AVM results. Some lenders prefer to use AVMs for various products like a Home Equity Line of Credit (HELOC). AVMs may also be used with other valuation tools like desktop or hybrid appraisals, as part of a lender’s assessment of the collateral.
AVMs are valuable — but they should not be confused with an appraisal. While appraisers analyze much of the same data as an AVM, they also combine this information with other data and local expertise. An appraisal provides a more in-depth analysis that’s based on more than just data.
When you’re considering an AVM, don’t forget about the location of the property. AVMs will be less valuable and reliable in rural areas, remote areas, and areas with a high concentration of unique or complex properties.
Should You Use a Real Estate AVM?
So, how do you know which option is right for you? It depends on the type of property that you’re looking at, and what information you’re trying to gain. If you’re looking for exact value, an AVM isn’t the right fit since the value is just an estimate. If you’re just looking to see where you stand, this is where an AVM can offer the most value. In situations like these, you can think of an AVM as the first step in the process.
Understanding the benefits and limitations of an AVM is the first step toward deciding whether to use this valuation product. Still not sure? Our expert team can help you identify the right appraisal options for your property, and can also set you up with a trial period to see if our products are the right fit for you. Get in touch with our team today to learn more.