Today’s question comes from a consumer in Michigan.
Question: “What is an AVM?”
An AVM is an “Automated Valuation Model”. AVM’s have long existed, most frequented used in actuarial processes for lenders or lien holders of real estate. First, there are many different kinds of value to be determined, is the value “Fair Market” or is it “replacement” or another?
Companies have created systems and algorithms to calculate the value of a real estate portfolio, which could be the total of loans outstanding for a large lending institution or the portfolio of individual real estate investors. Insurers also have their own methods for creating AVM’s.
Today consumers are most familiar with some forms of AVM’s that are frequently available via real estate search sites – which in reality are really media companies advertising properties to attract consumers and then sell the “consumer lead” to a real estate professional who is paying the media company for the lead. That is the simplest means to explain these portal websites.
The AVM models displayed are proprietary, created specifically for the purpose of that use. Data collected determines the results provided, the larger the pool of data the more likely an accurate valuation will be provided. Many models are based on geographic methodology that might not hold water in a different geographic area.
Much like real estate itself, a property value in California can’t be determined in the same way that a property value in Boston might be. A zip code is a lousy means to measure a value but is frequently the main means for some of the most popular portals to provide values.
Today, the most current valuations are those that use many sources for data collection. For instance the National Association of REALTORS has invested greatly in creating REALTORS Property Resource (RPR) to help REALTORS meet the needs of the consumers seeking valuations of their properties. RPR uses data only available to real estate professionals via listing services (Multiple Listing Services), loan processing services, various data aggregation, public records and more. The result, as I have tested myself, is an incredibly accurate and powerful valuation model, in this case it is called an RVM – REALTORS Valuation Model.
I have been using RPR for a number of years, and for full disclosure I am a certified contract trainer for RPR. I have shared my valuations with clients, REALTORS and appraisers. I have been told numerous times by appraisal professionals that the RPR RVM is “spot on” accurate in the comps, and the values determined. Yes there is some human input in the final adjusted results, as there should be in any valuation.
People are not machines, and an AVM is not for people – so looking at a portal AVM for your property, or a property you are interested in, without consulting a real estate professional, is not going to give you a realistic – nor fair – view of true value.
Before you put stock in that “estimate” of a properties value, put your faith in having a real estate professional, and even a appraiser, tell you what that true value is.