What is an Automated Valuation Model (AVM)

What is an Automated Valuation Model? It is a process whereby computers, using proprietary algorithms (aka “secret formulas”) provide an estimate of value of your property.

The first ones used were by localities, and this is where many of your assessed values were derived.

Then, public web sites started offering them. Perhaps you’ve heard of a “Zestimate”?  Today, many real estate web sites have a tool to provide some insights as to what the value of a property may be.

And banks are in on the action, too. If you apply for a short sale or a refinance, the bank is likely to, as part of their process, go to their secret, proprietary database and do their own estimate of your property.

Is this good or bad? And, how accurate are they? WELL, sometimes they are right on the nose. Sometimes they are WAY off. Where I live, in Loudoun County, the assessment values are supposed to be within a 10% margin of error. TEN PERCENT? Well, if you need to sell, and you could only get 90% of what you were expecting, would you be satisfied with that? Probably not. If your home’s estimated value was $1,000,000; but the “real” value was $900,000… would you be happy paying taxes on an extra $100,000? Again, probably not.

A friend of mine has been relocated and asked me recently what I thought the value of her home would be if she decided to sell.  Due to some technical restrictions, I can only provide an estimation of the sales price. I told her it would be right at about $600,000… perhaps just a bit over that. That was not what she wanted to hear, but she knows and trusts me. Maintaining 3 homes (she also has an investment property) is rather expensive, so she decided to refinance.

Her appraisal came in at $605,000. They were very close… and therefore, likely, very accurate….as accurate as you are going to get before you have a buyer. The appraiser and I are both actively engaged in the real estate market, we have access to some of the most accurate and current data available, and we’ve both seen the house with our own eyes, driven the neighborhood, maybe even seem some of the comps in person.

Her “Zestimate” was $629,000. Her county assessment was roughly $568,000. Those were both created by automated value systems. Why such a difference? Who knows, since the formulas are “secret”. But, really, BOTH are within that “allowable margin of error” that many automated valuation systems usually allow.

A little something to remember: The public web sites that offer FREE real estate tools and advice are not being operated as a public service, they are designed to draw web site traffic and then sell advertising space to people like REALTORs.  They aren’t really there to help you, even if you happen to find their site helpful.

On the other hand, the tax assessor needs to provide an estimate upon which to base your real estate taxes. They really want a fair estimate, since they are part of the equation that “balances” the local budget. However, their system is not perfect, can be based on inaccurate facts about your home or others, and is a “snapshot” valuation provided at a particular point in time. In Loudoun, they are reassessed each year, as of January 1. So, how relevant is this estimation in November? If the market has been stable, and it was a good estimation to start with, it may still be reasonable. But, markets are fluid and change rapidly. And, as I pointed out, the estimation may not have been accurate to begin with – since their “target” for accurate is within a 10% margin of error.

So, who to believe? I guess it depends, are you betting your prosperity on it? A full time professional that is competent, confident and trustworthy is going to be your best resource. But, do some homework of your own.

I recommend that rather than ask a computer what your home is worth, ask a computer what the sales prices have been for the homes that recently sold in your neighborhood. This is the information that more and more web sites are providing today as they recognize that only a human can provide a real opinion.

So when you’re looking at these comps, remember a few things: The more recent the sale, the better. Look for commonalities. We all know that every home is unique, as is every buyer, seller and transaction. So don’t look for what’s different; look for the things that are the same. Those with the most things in common will give you a fairly good idea of what your home might sell for. CLICK HERE to be routed to a web site where you can get this information for the Washington DC area (DC, most of MD, Northern VA and the panhandle of WV).

Then, give me a call. If I don’t service your area (I work the Dulles area – Loudoun & Fairfax), I have contacts throughout the DC region and I’d be happy to match you up with an agent you can trust.

For more information, consider these web sites:

REAL ESTATE INSIGHTS:
http://www.Facebook.com/TheRealEstateWhisperer

INFORMATION ON NEIGHBORHOOD SALES: http://www.SalesInMyNeighborhood.com/

MY MAIN WEB SITE: http://www.vickychrisner.com/

Or reach out to me directly for more information:

Vicky Chrisner, Fieldstone Real Estate

Ofc: 703-669-3142

Cell: 703-738-7432

Email: [email protected]