Showed Houses in Charlottesville Last Week -or- Why AVMs Suck

I showed a few townhouses last week. Big news, right?

I won’t say the price at which the referenced property is listed, for fear of giving specific real estate advice. It’s new to the market, surrounded by competition that have been on the market from 20 to 385 days.

The “market value” as defined by the various algorithms? Anywhere between $110k and $212k. Very helpful.

Consumers are using AVMs, that’s not a surprise. Consumers want to be able to research homes themselves before (or without) contacting a Realtor. What matters is context and interpretation. But … these computer-generated values skew perception of market value – the buyers’ perception, seller’s expectations, and the unsuspecting Realtors’.

One day, these AVMs might become right enough to define and shape the market. We’re not even close to being there yet, despite their widespread adoption by Wall Street and lenders. (does anyone really trust them either?)

Luckily, in Charlottesville, we’re too small of a market to have been sufficiently infiltrated by the AVMs, but they’re coming. I have talked to Realtors around the country who consistently have to respond to buyers or sellers leading the conversation with, “But Zillow says …” The response to which is, “Zillow haven’t been in your home. Or your neighbors’. Or the one down the street. Or around the corner.” They don’t know that the agent who sold that house has a reputation for overpricing, underpricing, taking poor photos which decrease the market value of a home. And on and on.

Zillow hasn’t been in the three townhomes in another neighborhood in Charlottesville, one of which needs to be gutted, one with a moist basement and mold coming on a piece of ceiling hanging from the bathroom and another one that absolutely needs to be taken to the studs.

Why don’t AVMs know this? They haven’t been in the house.

What’s an AVM? It’s an Automated Valuation Model. It’s a “value” created and crafted by software. It’s rarely an accurate value.

Automated Valuation Model (AVM) is the name given to a service that can provide property valuations using mathematical modelling combined with a database. Most AVMs calculate a property’s value at a specific point in time by analysing values of comparable properties. As well as this some look at previous surveyor valuations, historical house price movements and user inputs (i.e. number of bedrooms,home improvement spend, etc.).

AVM is short for “Automated Valuation Model”. Appraisers, Wall Street and Lending Institutions all use AVM technology in their analysis of residential property. An AVM is a residential Valuation Report that can be obtained in a matter of seconds. It is a technology driven report. The product of an automated valuation technology analysis, public record data, and computer decision logic combined to provide a logical calculated estimate of a probable selling price of a residential property. An AVM generally uses a combination of two types of evaluation, the running of a hedonic model and a repeat sales index. The results of each are weighed, analyzed and then reported as a final estimate of value based on a requested reasoning date. AVM technology reports are delivered over the Internet via any standard web browser.

An AVM typically includes:  
â–ª An indicative market value for many residential properties nationwide.  
â–ª The Tax assessor’s indication of value, if available.  
â–ª Information on a subject property and recent sales history.  
â–ª Comparable Sales analysis of like properties.


For example:

Albemarle Countys tax assessment for the townhome for: $150k.

Zillow zestimates it at: none (the neighbors’ houses share the same valuation).

A Zestimate home valuation is Zillow’s estimated market value. It is not an appraisal. Use it as a starting point to determine a home’s value. Learn more.

RPR puts the AVM at: $184,842. Note: only Realtors have access to RPR.

Cyberhomes puts it at $184,842, the price range is $166,357 – $212,568:

Realtor.com – You have to agree to have a Realtor contact you to provide the report. And I never received my report; but I did get an email from Audible.com.

Get a custom Charlottesville, VA Home Values Report- REALTOR.com®

The house is on the market for less than all of the above numbers.

The moral to the story? Don’t be swayed by online valuations. Do you homework. See the inventory for yourself. Smell the inventory. Look to the left and the right. Streetview can only show so much … such as the power lines that have been angled out of the property’s photos. Check out Bing.

There are way too many unzillowable aspects to a home to trust an online valuation.

So, Charlottesville buyers, homeowners and real estate voyeurs – do you use the aforementioned sites? Do you trust them? What do you like about them?

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7 Comments

  1. bhtphilo September 29, 2010 at 10:21

    I find it genuinely surprising that anyone would pay attention to them with anything less than an artery choking dose of salt.

    Reply
  2. Jim Duncan September 29, 2010 at 16:05

    I don’t find it surprising. Consumers are looking for impartial information to negate the “information asymmetry” that exists.

    Unfortunately, the AVMs just don’t work well enough to be trusted or depended on.

    Reply
  3. Ry September 30, 2010 at 16:57

    LOL @ bhtphilo.

    Reply
  4. rfs September 30, 2010 at 20:58

    While I realize the blog is about AVMs (which I would say are about as accurate as credit scoring models…), the fact that its listed at less than all the values submitted suggests to me…short sale.

    Reply
    1. Jim September 30, 2010 at 22:03

      Not a short sale. 🙂

      Reply
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