On Real Estate & More – November 2018

The technology used today for real estate transactions is amazing. The internet provides resources for everything related to real estate—locating properties, viewing, listing, advice on buying and selling, and even pricing calculators, known as an automated valuation model, or AVM.

An AVM is a program that automatically analyzes various data to produce an estimate on the current value of a home or property—the most well-known example is the Zillow “Zestimate.” Data analyzed can include the age of a home, market values, trends, historical data, property features and more.

AVMs do not account for variations in any number of things—changes that substantially alter the price from any sort of “average.” They do not take into account the property condition (including items such as floor plan, natural light, remodeling, or lack of maintenance), as a physical inspection of the property does not occur and therefore the valuation produced assumes an average condition which may not reflect reality. Purchasers relying on an AVM-backed mortgage application should get separate advice to establish the true condition of the property. Many AVMs are also using transactional data, which may lag anywhere from three to six months. This is a good starting point but still does not account for changes in current market conditions.

The most recent selling price of a property is certainly useful information to have and is likely the easiest concrete data that AVMs can obtain. What a home sold for is information that buyers and sellers should know about properties. However, it does not indicate what a home is worth now. The market is constantly changing and a sales price that is years if not decades old is no way to estimate the current value of a home.

The recent sale prices of nearby homes are also useful when you are buying or selling. Known as comparable sales, they make up a major factor in how a real estate professional will price a home.

The problem is, these comparable sales need to be considered for what they actually are—not as indisputable numbers.

Keep in mind that the number one reason why homes do not sell is because of an unrealistic asking price. Home listings that start out overpriced can languish unsold and end up selling for less than if they were priced more accurately when they first hit the market and buyer interest was at its highest.

Technology still has not advanced to the point where an online appraisal can accurately report the estimated value of a home. Pricing a home properly is an art and science all rolled into one. It is not accomplished very well by trusting a computer-generated value, whether it is Zillow or some other online valuation tool. If you want an accurate value of your home, always consult with a local real estate professional or competent appraiser.