Posted on: 11th Aug, 2008 11:53 am
What is an AVM?
AVM stands for Automated Valuation Model. It is a computer generated valuation based on mathematical algorithms applied to information extracted from public tax assessors data or some similar data. These have been widely used in the lending industry as a jumping off point to estimate value for collateral. It is however important to understand that this is not an appraisal and is not an adequate substitute for an appraisal. There are several things that an AVM cannot adjust for such as:
1. if the house is even there,
2. are there any unique feature that add or subtract value,
3. if changes or additions were made since the last time it was assessed,
4. are the selected properties actually similar to the subject,
5. are the selected sales really market sales,
6. were there any conflicts of interest,
7. negative external factors such as a nearby garbage dump or positive factors like a good school system,
Just to name a few. While these systems are good for getting a rough idea of value or at least a range in value, it would be prudent to obtain an appraisal to get a much more accurate opinion of value.
1. if the house is even there,
2. are there any unique feature that add or subtract value,
3. if changes or additions were made since the last time it was assessed,
4. are the selected properties actually similar to the subject,
5. are the selected sales really market sales,
6. were there any conflicts of interest,
7. negative external factors such as a nearby garbage dump or positive factors like a good school system,
Just to name a few. While these systems are good for getting a rough idea of value or at least a range in value, it would be prudent to obtain an appraisal to get a much more accurate opinion of value.
You mean benjamin, AVM is similar to the comparative analysis approach?
Hey Sara,
Depending on the type of AVM, Yes. I would say most rely solely on comparitive analysis at least to the extent that they are able. Since it is strictly mathmatical with no human hands, it must rely on a larger sample size and use a sales price regression to arrive at an estimate of value. In a relatively homogenous area, these models can be pretty accurate assuming the data used is also accurate. I know that here in the Atlanta area, tax assessor data is often unreliable or at least difficult to interpret. This alone can severely skew the results of an AVM analysis not to mention some areas where the value can swing as much as 50-75% based on condition or quality of renovations in the home. As a result, I have seen AVM estimates over $100,000 off the true market value of the property.
Depending on the type of AVM, Yes. I would say most rely solely on comparitive analysis at least to the extent that they are able. Since it is strictly mathmatical with no human hands, it must rely on a larger sample size and use a sales price regression to arrive at an estimate of value. In a relatively homogenous area, these models can be pretty accurate assuming the data used is also accurate. I know that here in the Atlanta area, tax assessor data is often unreliable or at least difficult to interpret. This alone can severely skew the results of an AVM analysis not to mention some areas where the value can swing as much as 50-75% based on condition or quality of renovations in the home. As a result, I have seen AVM estimates over $100,000 off the true market value of the property.
I believe fewer and fewer lenders are using AVM's now, due to the concern that they are not accurate and lenders' concerns about declining property values. Benjamin, are you seeing this also?
I will agree, at least for a primary source for collateral valuation. Many lenders still use them as a jumping off point to see if a range of value is possible prior to moving forward with a loan application. Some lenders are also using them as a quality control measure against other more traditional valuations. This is really what I think they were intended for.