What Does "AVM" Mean for Real Estate?

AVM systems take the appraiser out of appraisals.

AVM systems take the appraiser out of appraisals.

If you're looking to buy or sell real estate, you might come across something called an AVM appraisal or AVM price. An AVM is an automated valuation model, meaning a computer algorithm that comes up with an approximate value for a particular property based on different factors. You can often obtain real estate AVM data through a real estate broker or through online sites like Zillow. In some cases, you might want a human appraisal as well to determine how much real estate is worth.

Tip

An automated valuation model, or AVM, appraisal is an automated estimate of how much a property is worth.

Real Estate AVM Systems

With so much information about home sales and real estate computerized in recent years, it's probably natural that different companies have been using that information to estimate the value of homes and other properties. Tools that do so using computer algorithms and formulas are called automated valuation model systems, or simply AVM systems.

AVM systems use factors like the property size, the age of the buildings on it, information about recent home sales in the area, data about property features like fences and pools and other public information in order to estimate values. Different automated home valuation systems naturally use different algorithms and data sources, so two AVMs may disagree on the value of a property. Mortgage lenders may also use AVM mortgage-oriented systems to check the price of a home in considering a loan application.

Some AVM systems, like Zillow's Zestimate, make data available for free, while others are available only through real estate brokers or only to paying customers. Businesses may have their own internal AVM systems to use in deciding where to invest or where to open retail stores. Real estate brokers can also use AVM systems to spot properties that have risen in value in order to contact the owners about a potential sale. Some brokers or services may provide data from multiple AVMs so that real estate buyers or sellers can understand the range of opinions.

Consider AVM Limitations

Ultimately, a property is essentially worth as much as someone is willing to pay for it. AVM systems, like any appraisal, ultimately are valuable only to the extent that they can accurately predict sale prices.

Because they are automated and generally based on public data, they may miss some aspects a human appraiser or home inspector would spot. For example, they might not be able to detect issues with a blighted home in a neighborhood that can lower nearby property values. They generally can't pick up changes that have been made or not made inside a house, like a recent paint job, heating system upgrade, outdated kitchen or insect infestation.

Since they're largely based on public records, they are only as accurate as their data sources are up to date. Public records are easier to obtain in some areas than others, which can affect data reliability and quality. Recently made changes to a home or neighborhood might not be captured by an AVM, which can also cause them to overvalue or undervalue a particular property.

Automated Valuation Model Alternatives

Ultimately, it's unlikely that many people will buy property based solely on an AVM's assessment. Almost all buyers, especially those of residential real estate, will want to physically visit the property they're looking to buy, which may turn up issues overlooked by the AVM system.

They may also want to call in professional home appraisers or home inspectors to make sure they understand any issues it takes an expert eye to spot in evaluating the condition and value of a home. Real estate brokers can also offer insight about neighborhoods and the properties in them, as well as ongoing or pending changes that may not be apparent on a first visit.

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About the Author

Steven Melendez is an independent journalist with a background in technology and business. He has written for a variety of business publications including Fast Company, the Wall Street Journal, Innovation Leader and Ad Age. He was awarded the Knight Foundation scholarship to Northwestern University's Medill School of Journalism.

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