7 facts 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 discover the value of a property should be aware of just 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 situated where it’s said to be, has four walls and a roof, and really is a four bedroom split level rather than a one bedroom shack.
- Whether or not unique attributes of a property might add to or detract from market price. So a computer produces an approximated property value of $150,000. Did it take into account the sewage treatment facility next door? The railway tracks nearby with trains that blow their whistles each night? The school district? The desirability of its tree lined street versus the next street over?
- How long ago the house was assessed. Many AVMs and free internet services depend on public assessment records. In many states, for instance, assessments might only be required every several years — the value may be practically three years old in that case. A few states require that an assessed value not enhance beyond a certain percentage, even if sales activity suggests the house or property has appreciated much more. When using an AVM or free online service, you risk a lesser value than reality.
- What makes the comparables comparable. A computer will probably contrast your subject property to some other property with similar square footage sold 3 months ago a quarter of a mile away. Even if that “comparable” property is in another, less sought after school district, fronts a four-lane, 55 M.P.H. street, and is flood-prone. Or even if the property was sold under duress, like in a divorce circumstance, or not at arm’s length, for example to family members. A computer simply does not recognize all the adjustments that might need to be made to a “comparable” property’s sales price.
- Whether a market is declining. Automated valuations use information from recent, surrounding sales. If those sales were finished during the peak of a local housing market, your computer will presume the trend is going up. Even if a professional appraiser recognizes that the overall community is just starting to experience a recession. As a lender, don’t get stuck with a home that has been overvalued by a computer.
- Whether there’s a conflict of interest. Online home values are often farmed out to realtors in your area, who use the service to get your listing once you decide to sell. The easiest way to do that is to surprise you with their confidence that they’ll acquired a higher price for your property. If they inform you your property is “worth” the high end of what they think they can sell it for, the thought goes, you’ll be more likely to sign a listing agreement. With most things, it is best to “under promise and over deliver” — but the opposite is true when using a free online home value service.
- What qualifications, designations, experience and education the preparer of the value has. Whenever you make use of an appraiser, you will be assured we’re extremely qualified, ethical and prepared to complete your assignment professionally and with good judgment. In most cases, you do not know the qualifications of whoever is behind those free online values, and they couldn’t compare to an appraiser’s if you did. So if you’re relying on a computerized valuation, you’re cheating yourself out of an appraiser’s education, experience and expertise.