AVMs suffer from the old adage "garbage in, garbage out". In many counties, like San Francisco County, the assessor records are incomplete and/or inaccurate. An unreliable data base cannot possibly generate accurate estimates of value. It takes an actual human being with a working knowledge of these properties to interpret the data. Do NOT trust AVMs in counties where the data base of the assessor's office is outdated, incomplete or inaccurate.
7 things an automated or non-appraiser valuation won't tell you
Lenders and brokers using Automated Valuation Models (AVMs) and homeowners using "free online home values" to determine the value of a property need to know what those results aren't telling them.
- Whether the house is really there. A computer can't so much as drive by a house to see if it's actually located where it's supposed to be, has four walls and a roof, and really is a four bedroom split level and not a one bedroom shack.
- Whether unique features of a property might add to or detract from market value. So a computer returns an estimated value of $150,000. Did it account for the sewage treatment station next door? The railroad tracks nearby with trains that blow their whistles every night? The school district? The desirability of its tree-lined street versus the next street over?
- How long ago the property was assessed. Many AVMs and free online services rely on public assessment records. In many states, for example, assessments may only be required every three years — the value may be nearly three years old in that case. Some states mandate that an assessed value not increase beyond a certain percentage, even if sales activity indicates the property has appreciated far more. When you use an AVM or free online service, you risk a lower value than reality.
- What makes the comparables comparable. A computer might compare your subject property to another property with similar square footage sold three months ago a quarter of a mile away. Even if that "comparable" property is in a different, less desirable school district, fronts a four-lane, 55 M.P.H. street, and is flood-prone. Or even if the property was sold under duress, such as in a divorce situation, or not at arm's length, such as to a family member. A computer simply does not know all the adjustments that might need to be made to a "comparable" property's sales price.
- Whether a market is declining. Automated valuations use data from recent, nearby sales. If those sales were completed at the peak of a local housing market, the computer will think the trend is going up. Even if a professional appraiser knows that the overall neighborhood is beginning to experience a downturn. As a lender, don't get stuck with a property that's been overvalued by a computer.
- Whether there is a conflict of interest. Free online home values are often farmed out to real estate agents in your area, who use the service to get your listing when you decide to sell. The best way to do that is to impress you with their confidence that they can get a higher price for your property. If they tell you your property is "worth" the high end of what they believe they can sell it for, the theory goes, you're more likely to sign a listing agreement. With most things, it's best to "under promise and over deliver" — but the opposite is true when you use a free online home value service.
- What qualifications, designations, experience and education the preparer of the value has. When you work with an appraiser, you can be confident we're highly qualified, ethical and prepared to complete your assignment professionally and with good judgment. Most of the time, you don't know the qualifications of whoever is behind those free online values, and they couldn't compare to an appraiser's if you did. And if you're relying on an automated valuation, you're cheating yourself out of an appraiser's education, experience and expertise.
(the following article has links to online valuation services)
Online estimates of home values are often misleading
By ALEX VEIGA
Associated Press
Posted: July 12, 2008
Los Angeles - Consider it among the unintended consequences of the national housing bust: Homeowners radiating every shade of anxiety after visiting online real estate sites that conjure up instant home value estimates.
But for many homeowners, the home value estimates keep them coming back, even though the sites often offer plenty of disclaimers.
The sites are packed with so much information that, undoubtedly, some homeowners end up taking the estimates a bit too seriously.
Experts say that's a mistake.
"The percentage of error on these estimates is still very large," says Delores Conway, director of the Casden Forecast at the University of Southern California Lusk Center for Real Estate. If there are not many comparable sales in one area, for example, she says, "the estimates will have huge errors in them."
Zillow, Cyberhomes and similar sites use computer-generated "automated valuation models" to come up with their estimates. The models are necessary, in part, because many homes don't sell all that often, like say, stocks, so it's harder to peg what they might be worth.
Still, the different models can lead to disparities - sometimes by tens of thousands of dollars - from one site to the next.
That's because data, such as whether a homeowner has made significant improvements, like a state-of-the-art kitchen, can be missing. Or sometimes there are errors in key information, such as county assessor data. In the case of one house for sale in Riverside, Calif., for example, Cyberhomes and RealEstateABC had it listed as having three bedrooms and two baths, while Zillow and Redfin describe it as a four-bedroom home with two and a half baths.
More glaring disparities can be found in the sites' home value estimates.
Cyberhomes estimated the value of that same home in Riverside at $361,647, down $1,287 over the past month.
RealEstateABC's estimate was $417,000.
Zillow pegged the property's value even higher at $422,000, and figured it had dropped in value by $9,000 in the last month.
These sites are really best used as a gauge of market trends. For anything more specific, you're best dealing with a real estate agent or appraiser.
Then you can panic.
On the Web Zillow:www.zillow.com
Cyberhomes:www.cyberhomes.com/default.aspx
RealEstateABC: www.realestateabc.com
Eppraisal: www.eppraisal.com
Redfin: www.redfin.com/home