7 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. The most important void created by AVMs is the difference in the condition (effective age) of your home and those of the sales used to short cut the thinking process for the instant gratification of seeing a "value."
- Are all the homes around you alike? A computer can't so much as drive by a house to see if it's actually located where it's supposed to be, has four walls and a roof, and really is a four bedroom split level or a one bedroom efficiency rental. Fact: You get what you pay for. Would you loan $100,000 of your money for something no one has seen?
- Whether unique features of a property might add to or detract from market value. So a computer returns an estimated value of $150,000. Did it account for the money you've invested in the new kitchen, the roof and other improvements you've made in the past five years? The money you've spent on your home (and the lack of money spent on the sales in that AVM) make a certified appraisal more valuable than ever in today's volatile real estate market.
- How long ago the property was assessed. Many AVMs and free online services rely on public assessment records. In many states, for example, assessments may only be required every three years — the value may be nearly three years old in that case. 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 a lower value than reality.
- What makes the comparables comparable. A computer might compare your subject property to another property with similar square footage sold three months ago a quarter of a mile away. Even if that "comparable" property fronts a four-lane, 55 M.P.H. street and is flood-prone. Or even if the property was sold under duress, such as in a divorce situation, or not at arm's length, such as to a family member. A computer simply does not know all the adjustments that might need to be made to a "comparable" property's sales price.
- Whether a market is 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 think the trend is going up. Even if a professional appraiser knows that 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.
- Whether there is a conflict of interest. Free online home values are often farmed out to real estate agents in your area, who use the service to get your listing when you decide to sell. The best 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, the theory goes, you're more likely to sign a listing agreement. With most things, it's best to "under promise and over deliver" — but the opposite is true when you use a free online home value service.
- What qualifications, designations, experience and education the preparer of the value has. When you work with an appraiser, you can be confident we're highly qualified, ethical and prepared to complete your assignment professionally and with good judgment. Most of the time, you don't know the qualifications of whoever is behind those free online values, and they couldn't compare to an appraiser's if you did. And if you're relying on an automated valuation, you're cheating yourself out of an appraiser's education, experience and expertise.