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, such as.

1. Whether or not the improvements reported as a sale a showing up in an AVM are even still there. A house sells as a fixer for land value and is then removed shortly thereafter to build a new home or perhaps repurpose the land if a better suited use is determined by the buyer. Lenders should be privy to this information as this is not an ideal sale if the subject of an AVM is a perfectly suited, well maintained home in which the owner seeks to refinance or a buyer wishes to purchase. Conversely so, a homeowner seeking a refinance or a buyer wishing to purchase a property in a neighborhood should not settle for an AVM (Automated Valuation Model) which considers such market activity in the automated value estimate of the subject property. Lenders and property owners should demand an appraisal and not settle for a blind Automated Valuation with no conscious awareness of the data being analyzed.
   

    

2. 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 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? An AVM will not be able to identify that un-permitted garage conversion and likely not even a permitted garage conversion. A computer will not know you remodeled your kitchen- a hefty expense in which you will want to know the return on this investment. A computer does not know you added valuable and costly square footage to your home. In short, the computer does not know a lot of things that an appraiser will find extremely important.
   

    

    

3. 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.

    

    

4. 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 different neighborhood, 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. It is highly unlikely that a homeowner would be OK with their most valuable asset being valued based on fixers in the neighborhood or sales of highly motivated sellers doing a job relocation or going through divorce in which they were willing to lose money on the property or sell far below typical arms length sales in the area. Demand an on site appraisal and don't settle for an AVM.
   

    

    

5. Whether a market is declining, stable or increasing. 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 or has stabilized from increasing trends. As a lender, don't get stuck with a property that's been overvalued by a computer. As a homeowner, don't let a computer pick a few sales from 3 months back, slap a value on your property and call it a day only to find later on that your home was over-valued and you are slated for a short sale because you paid too much for your house. On the flip side, if the market is trending upwards, AVMs simply don't analyze true sub-markets to determine price trends and will not know that a particular sub-market in an area has actually been increasing which results in you as a homeowner missing out on tapping into valuable equity should the need arise.
   

    

    

6. 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.

    

    

7. What qualifications, designations, experience and education the preparer of the value has. When you work with an appraiser, you can be confident I'm 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.