Lets talk about Automated Valuation Models or AVMs. AVMs are computer driven home values based on quantifiable data like bedroom and bathroom counts, square footage, and lot size. The best known AVM is the Zestimate by Zillow. They can be fairly sophisticated and take in consideration such things as amenities or location on a block or cul-de sac. Their drawbacks include not being able to take into account the condition of the home, the quality of the floorplan, and any location issues such as a great view or a nuisance easement. Zillow’s own charts show that in the San Francisco real estate market they are only within 5% of a sales price 45.9% of the time and only within 10% of the sales price 73.9% of the time.

In spite of their inaccuracies, AVMs are very popular with homeowners and casual home sellers. They are often used by real estate agents (including us) as a marketing tool to scratch the curiosity itch of potential clients.  Some lenders will use AVMs in lieu of an appraisal when the market is hot and risks are low. For example, if the loan to value will be 50%, having a less accurate valuation doesn't change the risk to the lender. If the bank needs to take the home back and resell it, they will cover their cost of the loan and foreclosure, even if the valuation is off by 20% or more.  

AVMs are best for tracking trends in a given market. They work better in newer conforming markets where all the homes are in similar condition and the same floor plan is common enough to find statistical comparable sales readily available.  They work less in older neighborhoods with custom homes, as these can vary greatly in floor plans, updating, and condition.

Here’s where we come in!  Some of the biggest factors determining the value of a home aren’t on paper and can’t be seen by an algorithm.  Like, what condition is the home in? Or the finish and conditions of fixtures and finishes of the house.  How recently was the home remodeled or updated? And what was remodeled or updated? Or perhaps there is an important architectural feature that adds value to the home, or a view, or it backs up to open space that won’t be developed.  These are factors that only an agent, experienced in the area, and knowledgeable about the current market can use to determine a comparable market analysis.

For the best valuation of your home, contact us to work up a Comparable Market Analysis or CMA. Please see our previous post and video, on CMA’s.