Expert Answers: What is an AVM?

Today’s question comes from a consumer in Michigan.

Question: “What is an AVM?”

Expert Answer:

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.

Pulling Back the Curtain of the Real Estate Industry

Nothing frustrated me more than the current contentious state of relations between the real estate professionals, the real estate industry and the consumer.  Add to that the confusion of all the resources for finding real estate, and the lack of accuracy in some of those resources.   Media companies portraying themselves as “service” sites, while selling advertising to real estate professionals, spending to capture and establish trust with consumers, and then in turn selling the consumers contact information to real estate professionals as qualified “leads”.

In some ways it has become a game of who has the biggest budget, who can manipulate the public perception best, and therefore dominate a market.  The truth is that service is the core of the real estate transnational process.  I have spent the last 8 years helping to educate real estate professional on how to best serve the needs of their clients, through clear and concise communications, client education meetings, mutual expectation discussions and more.

Being a Consumer Advocate
During this process I have long wanted to address the consumers, the sellers and purchasers of real estate, to help facilitate a positive experience, and revise the public perception of what a “Real Estate Agent (Broker/Associate, etc)” is.  I believe that time has come, if not past, and as I see more predatory methods being used to monetize the listings of real property, the native distrust of the real estate professional by many consumers only allows those seeking to profit more opportunity.

There comes a point in time when the curtain needs to be pulled back and the “wizard” behind exposed for all to see the truth.  The goal of EstateSocial.com is to pull that curtain back, to discuss the industry, the process, to help remove misconceptions and prevent misunderstandings between consumers and professionals.

There is so much more to the business of real estate than the two aspects of the professional and the consumer (or client).  There is the brokerage model – and how the business of a real estate brokerage works.  There are many models and agents/licensees decide who to associate with.  By shining a spotlight on the industry and the process the goal of EstateSocial is to facilitate a great understanding and appreciation of what a real estate professional offers a consumer, and to help those professional understand many of the common concerns, or confusion, of the real estate consumer or client.

A Great Divide
There is a disconnect between the real estate consumer and the real estate professional.   A great part of that disconnect is the lack of understanding of how the process of buying and selling real estate works.

On the other foot, the real estate professional sometimes forgets the magnitude and impact of a real estate transaction on an individual, couple or family.

Between professional jargon and acronyms, consumers often are lest wondering what is going on.  What is a FSBO?  What is a CRS? ABR?  REALTOR or Realtor or realtor?  What is the difference, or is there a different between a realtor, licensed real estate agent, broker, etc.

Many terms are often used interchangeably in various media outlets, when in fact they are not.  Consumers need answers, and real estate professionals need reminders of why we all are doing this – as professionals and consumers – to help people.

Customer Satisfaction Starts with Understanding
Real estate, as an industry, is really about customer service and satisfaction.  Serving the needs of the client, putting their best interests first in a real estate professional capacity as their representative (aka Agent).  The consumer needs to understand that the real estate professional works for them, how they are compensated and why “keeping our options open” when looking for a property is more often a disservice to the consumers needs rather than an advantage.

By facilitating conversation, answer questions and providing explanations, EstateSocial.com hopes to help bridge the gap between consumers and professionals to provide a better understanding, mutual appreciation and less frustration on both sides.

Estate Social is a place for consumers, real estate professionals and conversations between the two.  To encourage understanding, compassion and a positive outcome for everyone who buys, sells or transacts real estate in any capacity.

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