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What ISN"T an Appraisal

"Under the Hood"

About AVMs

Seven 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.

Is the house is really there? A computer can't drive to see if a house is actually located where it's supposed to be, has useful walls and a intact roof and really is a four bedroom split level and not a one bedroom shack.

Will the property's unique features add to or detract from market value? When 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 hour? The desirable school district? The beauty of its tree-lined street versus the next street?


How dated is the assessment? Many AVMs and free online services rely on public assessment records. In many states, assessments might only be required every three years; therefore, the value may be nearly three years old in those cases. 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 receiving a potentially lower value.

What makes the "comparables" comparable? A computer might compare your subject property to another property with similar square footage that sold three months ago a quarter mile away. It will do that even if that "comparable" property is in a different, less desirable school district, fronts a four-lane highway and is flood-prone. It will also do it if the property was sold under duress or not at arm's length. A computer simply does not know all the adjustments that might need to be made to make a "comparable" truly comparable.

Is the market 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 likely conclude the trend is up. A professional appraiser would know 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.

Was there is a conflict of interest? Free online home values are often farmed out to real estate agents who use the service to get your listing when you decide to sell. A good 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, you're more likely to sign their listing agreement. As with most things, it's best to "under promise and over deliver" but the opposite is usually true when you use a free online home value service.

What are the preparer's qualifications, designations, experience and education? When you work with a professional appraiser, you can be confident that we're highly qualified, ethical and prepared to complete your assignment according to USPAP and with good judgment. With free online services, most of the time you don't know the qualifications of whoever is behind those values and it's highly likely they wouldn't compare to an appraiser's if you did. One thing is for certain: if you're relying on automated valuations, you're cheating yourself out of an appraiser's education, experience and local expertise.

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