The Danger of Using an AVM to Price Your Home

Homeowners have a natural curiosity regarding the value of their home. After all, it is likely their largest investment and every homeowner wants to know how their investment is performing. With the availability of data these days, we can learn our bank balance, 401K balance, and can even check our credit card and loan debts with a few clicks of the mouse. Many homeowners assume that by typing in their address into a search engine the results and up-to-the-minute valuation by some of the larger “Automated Valuation Models” (or AVMs) can be used to accurately predict the market value of one’s home. While these AVMs can be used as one of the many sources for determining current market information, they do not represent accurate market value, which can only be ascertained by a licensed real estate agent who can evaluate it correctly.

In general, AVMs compare properties that have sold in the same area as the subject property and look at variables such as price per square foot, lot size, bedrooms, bathrooms, and amenities to draw comparisons. However, there is a limit to the data that is compared and only a real estate agent with thorough knowledge of the market and the comparative properties can truly understand how the demand for these properties may or may not be similar to the subject property. There could be vast differences in finishes, updates, style, landscaping, and more that would not be evaluated by the AVM.

For example, let’s say a homeowner has a three bedroom home with high end finishes, upgraded kitchen with high-end appliances and a bonus room above the garage with built-in storage and cabinetry and a view of the lake. Down the street, a home has just sold that has three bedrooms without upgrades. There is a bonus room, but it has only been finished with drywall and industrial carpet. The AVM may not be able to take the variations in finishes into account and therefore the subject property may be valued much lower than market value by the AVM. The shoe is sometimes on the other foot and property owners with lower end finishes wind up thinking their home is valued higher because the comparative properties include those with higher-end finishes.

When I am asked by a seller to perform a market evaluation, I start out by looking for homes that have recently sold in the vicinity, but I take it a step further by noting any upgrades, deficiencies, and of course, how long it took for the home to sell. I then tour the subject property with this in mind, but I keep my eyes open for “listing dollars” or things that a potential buyer would find valuable such as an upgraded furnace, crown molding, on-demand water heater, or a recently-replaced roof.

You can certainly use an online AVM to give you a very broad overview of the market, but if you read the fine print on these sites even they indicate their valuations are only ranges with large discrepancies with actual sold properties.   If you REALLY want to know what your home is worth allow me to give you an accurate valuation of your property.

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