What criteria is used to come up with Estimated Value?


#1

What criteria is used to come up with Estimated Value?


#2

We use a commercial grade automated valuation model (AVM) based on public records data to determine estimated home values for properties scheduled for auction. We have qualified this AVM and find it to be quite good, but an AVM does not account for the context of the property, condition or other factors which may affect the home value. An AVM is no substitute for local knowledge of an area and an overall understanding of the condition of the property.


#3

Hi Michelle,
Would it be okay to disclose what AVM you guys use? There are a few different kinds of AVMs, I know the AVM is not the definite answer on value, but I’m trying to evaluate different AVM’s to see if there is one that I can hold more importance to and am more comfortable with. Thanks for your help.


#4

HI Alan, Great question. Unfortunately we have an agreement with our provider that we do not disclose this information. Most commercial grade AVM’s come with a hefty charge per AVM and this is something that we are providing on our site for all of the properties. I know that lenders pay approximately $20 to pull a commercial grade AVM as a last minute check of value as a last minute funding condition.


#5

Hi Michelle,
Thanks for the answer. I understand. Yeah, there’s even a few different AVM products for one company. But as you said, AVM’s are not a substitute and have their limitations.


#6

AVM’s are great when the value works in your favor and you hate them when it doesn’t. They are a great guide but should never be using in place of a visual inspection or an appraisal. I know that there is a property in my town where the home burned down. The AVM still values the property as if the house was still there.


#7

Exactly. Also, a major weakness of them is I don’t feel they do a good job of accounting for the distressed sales and the condition of the property.


#8

Hi Michelle,
Do you know if the AVM FR has is a better guide of what the after repaired value should roughly be OR a better guide of the value of foreclosed/distressed properties sales? It seems different AVM’s can give a wide range of values at times, which is puzzling sometimes when you think that most AVMs seem to use the same data.


#9

Hi Alan, Automated valuation tools look only at recent solds in the area. If the properties that are selling are in excellent condition then the AVM would reflect that. If the area is plagued by distressed sales and the properties are being sold as is and in poor condition then the AVM will reflect that. An AVM would never take the place of a visual inspection. Just like appraisers the AVM’s only use the most recent sales. This is the problem with the way we value properties. It is not necessarily based on what a reasonable person would pay for that property in the current condition. They look only at the property characteristics and the sales price.


#10

Very true, thanks for your reply. What is a little confusing to me is that aren’t these different avms using pretty much the same recent sold data? I understand they may have slightly different formulas to calculate value, but shouldn’t they have somewhat similar value estimates? Sometimes there can be a very wide range of value estimates.


#11

Of course the most common one in “public” use is zillow.com. However, since the crash, their accuracy leaves a lot to be desired. They still are good for tract areas or condos where they show recent sales of properties that are exactly the same.
Best source is the local MLS. You have to be licensed to buy access to that.


#12

Every AVM provider is going to have their own “model” that interprets the data and provides a value. Most are based on public record data, some claim to track data as submitted by recent appraisals. The bottom line is that all AVM’s are going to be limited to data from surrounding area and public record information on the property characteristics. An AVM cannot differentiate between a property that backs up to a freeway and one that backs up to open space or other variables like the school districts or gated communities. You will also find discrepancies when there has been a recent addition that does not yet show in public records.


#13

Thanks for your reply. Based on all those other variables it makes me question if AVM’s are good for anything at all. I mean say it’s a guess on value that I’ve seen off by $50k, what’s the point of putting any weight on the AVM at all, unless $50k doesn’t matter in your deal.


#14

As a definitive valuation tool to make buying decisions absolutely not. As a guide or a sorting mechanism to identify opportunities that require further research it can be very helpful.


#15

Thank you for your reply Michelle. I guess that is true for that use, very well said, but I’d caution against eliminating a deal based on an AVM showing little equity based on the opening bid and value. The AVM can be $50k wrong and you could have a deal. I guess I should stick to areas I already have a rough idea of the value or take the time to pull the comps for.


#16

You may want to consider working with a local agent to assist you with your valuation. A relationship with a local agent can be very beneficial. They can also help you list and sell or lease the property.


#17

Yes, I do that as well, thanks for the input though. I was just hoping to be able to put more weight in an avm so I can pre screen them quicker and somewhat accurately and broaden the areas I look for deals. Thanks for your help.