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.
- Whether the house is really there. 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 and not a one bedroom shack.
- Whether unique features of a property might add to or
detract from market value. So a computer returns an
estimated value of $550,000. Did it account for the sewage
treatment station next door? The railroad tracks nearby with trains
that blow their whistles every night? The school district? The
desirability of its tree-lined street versus the next street
over?
- 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, it uses a much longer time period than what truly reflects
the current market.
- 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 is in a different,
less desirable school district, fronts a four-lane, 55 M.P.H.
street, and is flood-prone. Or even if the property was sold under
duress in an area where distress sales are not common, 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 changing. 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.
- 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. 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.
However, as a broker or homeowner, trying to decide if a
refinance is "doable" we do recommend that if you use these sites
you ignore their estimated values and instead look at the sales
surrounding your property within the past 90 days. This will
give you a range - although still won't account for all of the
differences between the properties. We have compiled a list
of these resources.