AVMs… The Not So Accurate Magic Bullet
Folks, in all the diatribes against appraisers by people who believe “we” have built-in systemic bias, the topic of AVMs has come up. Some of the diatribers apparently think that using an AVM will magically produce an accurate property valuation, while eliminating bias, and appraisers.
Well, not so fast.
A while ago I saw a ‘consumer facing’ article telling people how they could get the value on their home. That article mentioned three on-line services which claim to provide accurate property values. In alphabetical order, those services were REDFIN, ReMax, and Zillow.
Just for grins, I decided to access these sites to see how my home property would be valued. I was so thrilled to find out there is a nearly 10% spread in those values, equating to almost $57,000 between the low and high prognostications!
So much for accuracy.
I recall that the services actually showed which properties were used to derive my property value. The AVMs actually had built-in bias present because most of the properties selected for comparison were in no-way similar to my property in terms of location, view, site size or home design. Some even use listings! In effect, the value presentations were a load of bovine substance.
Then on 7/14/22, an article titled AVMs: Why One Size Doesn’t Fit All appeared in the MReport, which you should peruse for greater understanding about what AVMs are, how they are designed, and put to use.
But here are some excerpts from the article:
That last line is important because the people advocating AVM use instead of appraisers apparently believe that the AVM can be used to divine value of a subject’s property “here” by using properties from “over there” in order to increase the subject’s value. Talk about bias!!
Well, if an AVM is properly designed for lending purposes, it should be sophisticated enough to use properties near the subject, from all the data mining, appraisal emulation and other inputs it relies on. That’s no different than what competent and experienced appraisers do.
The AVMs used for my property (and others) on-line research are considered ‘consumer-grade’ and have far less sophistication and accuracy. They are basically marketing tools designed to draw in customers.
But the take away in all this is AVMs are not going away. And in fact, they are getting better at approximating property values close to what appraisers present.