On a regular basis, my opinion of value of a property I am appraising, is frighteningly similar to an AVM’s value. While that is the case, as you will see in this article, that is not always the case. You might be wondering what an AVM is? AVM stands for Automated Valuation Model. It is a computer program that uses mathematical modeling to derive a value based upon the data it is provided.
In this article I differentiate the typical AVM from Zillow’s Zestimate because Zillow claims to be more accurate than other AVM’s, due to the technology they use. Zillow’s Zestimate is an AVM.
When is an AVM more likely to be inaccurate? What types of things, related to value, is an AVM not likely to take into consideration? Perhaps the results of my little test will shed some light on the subject.
I looked at ten appraisals in a row, that I have completed within the past month. I did not include appraisals that I had completed for proposed construction nor for properties in which the value was made ‘subject to’ proposed renovations. Except for those types of properties, I did not leave any other properties out. I also observed both the interior as well as the exterior of these properties, and I measured them to verify their gross living area.
Inquiring minds may also want to know the purpose of each report. While I will not identify the purpose of the appraisal for the specific properties below, I will say that three of them were for private homeowners (two for estate planning one for pre-listing), four of them were for refinances and three were for purchases.
The following are the results:
PROPERTY 1
Property location: North Royalton, OH (Suburban Neighborhood)
Type of property: Single-Family
My opinion of value: $225,000
CoreLogic’s Realist AVM value: $201,700
Zillow’s Zestimate: $218,860
Comments: There were a fair amount of similar properties that have sold within this neighborhood in the past few years. When this is the case, AVM’s are generally more accurate. The gross living area (GLA) was generally the same as public records reflects)
PROPERTY 2
Property location: Bratenahl, OH (Suburban Neighborhood)
Type of property: Single-Family
My opinion of value: $2,900,000
CoreLogic’s Realist AVM value: $1,683,700
Zillow’s Zestimate: $2,062,898
Comments: This property offers an excellent quality of construction and architecture. It was recently partially renovated. It also has a relatively large lot for this neighborhood, and it offers Lake Erie frontage. It appears to me that the other two value estimates did not take these factors into consideration. The gross living area (GLA) was generally the same as public records reflects)
PROPERTY 3
Property Location: Avon, OH (Suburban Neighborhood)
Type of property: Condominium
My opinion of value: $205,000
CoreLogic’s Realist AVM value: $191,600
Zillow’s Zestimate: $206,083
Comments: Being a condominium, there were numerous comparable condominium sales that have sold in recent years in this development. The gross living area (GLA) was generally the same as public records reflects)
PROPERTY 4
Property Location: Cleveland Heights, OH (Suburban Neighborhood)
Type of property: Single-Family
My opinion of value: $200,000
CoreLogic’s Realist AVM value: $223,000
Zillow’s Zestimate: $225,000
Comments: This is a tricky area. The subject property is located in a less desirable neighborhood than surrounding neighborhoods that are south of this neighborhood. It appears that the AVM’s are picking up homes in a superior neighborhood. I couldn’t find any sales comparable sales that have sold in the subject neighborhood for anywhere near the mid 220’s. The gross living area (GLA) was generally the same as public records reflects)
PROPERTY 5
Property Location: Cleveland, OH (Urban Neighborhood)
Type of property: Multi-Family
My opinion of value: $71,000
CoreLogic’s Realist AVM value: $97,000
Zillow’s Zestimate: $128,160
Comments: There has not been a single multi-family sale that has sold within miles of this property for more than low 70’s that have sold in recent years. I have no idea where these AVM’s are pulling their data from, but they way off, in my opinion. I have the data to prove it. The gross building area (GBA) of this property was approx. 30% larger than the public records reflect.
PROPERTY 6
Property Location: Brecksville, OH (Suburban Neighborhood)
Type of property: Condominium
My opinion of value: $68,000
CoreLogic’s Realist AVM value: $69,000
Zillow’s Zestimate: $69,900
Comments: I had numerous sales that were nearly identical to the subject. This is reflected in the value from the AVM’s. The gross living area (GLA) was generally the same as public records reflects)
PROPERTY 7
Property Location: Homerville Township, OH (Rural Neighborhood)
Type of property: Single-Family
My opinion of value: $55,000
CoreLogic’s Realist AVM value: $121,700
Zillow’s Zestimate: $68,234
Comments: This property was in need of a lot of repairs and updating. Homes selling in the $120’s in this area reflect a considerably superior condition in comparison to this property. The GLA of this property is approx. 25% larger than public records reflect.
PROPERTY 8
Property Location: Akron, OH (Suburban Neighborhood)
Type of property: Single-Family
My opinion of value: $503,000
CoreLogic’s Realist AVM value: $485,800
Zillow’s Zestimate: $447,290
Comments: This property was recently renovated with a new kitchen and many interior upgrades and exterior upgrades. The gross living area (GLA) was generally the same as public records reflects.
PROPERTY 9
Property Location: New Franklin Township (Suburban Neighborhood)
Type of property: Single-Family
My opinion of value: $596,000
CoreLogic’s Realist AVM value: $311,200
Zillow’s Zestimate: $626,436
Comments: This is a lake front property. It does appear that the Zestimate has accounted for this. Clearly the CoreLogic’s AVM output did not. The GLA of this property is approx. 5% smaller than the public records reflect.
PROPERTY 10
Property Location: Brecksville (Suburban Neighborhood)
Type of property: Single-Family
My opinion of value: $454,000
CoreLogic’s Realist AVM value: $380,600
Zillow’s Zestimate: $337,134
Comments: This property has approx. 40% larger gross living area than the County Auditor reflects.
There you have it. What are your thoughts on the data above? Here are some of my take-aways from this data:
- If you own a home in a neighborhood in which there are other very comparable homes that have sold within the past year or so, chances are decent that the AVM may be in the ballpark.
- If you have a home with unique characteristics, such as lake frontage or golf course frontage, or some other major amenity that adds value, AVM’s may not pick up on this, and are likely to be off.
- If you own a home that has been extensively renovated or, is in fair or poor condition, an AVM probably will not reflect this in their value output.
I find it interesting that in some of these examples, my opinion of value was higher than the AVM or Zestimate. Appraiser’s seem to get a bad rap for always coming in lower than others have anticipated. The truth is that there are times when our opinion of value may be higher than what others anticipate, including in purchases. Each case is different.
If you are thinking of selling your home, or are considering buying a home, why not have it appraised? Did you know that anyone can order an appraisal? If a bank orders the appraisal, then they are the appraiser’s client. What if you qualify for an appraisal waiver? As a borrower, you can hire an appraiser directly, to appraise the home you are taking a loan out on. In this situation, the beauty is that you are the appraiser’s client. You can ask the appraiser to help you to understand how they developed their opinion of value. You can’t ask an AVM any questions. In my mind, that makes hiring a qualified licensed or certified appraiser a huge plus for the consumer!
As things continue to change in the lending world, more technology will be used. That is not all bad. However, technology has its limitations. And, in my humble opinion, it always will.
Even if you don’t order an appraisal, feel free to call me, or an appraiser in your area, and ask us questions. We are here to help you! If you’re looking for an appraiser in the Northeast Ohio area, don’t hesitate to give me a call! If the type of assignment is not within my wheelhouse of expertise, like for commercial properties or some types of agricultural properties, I know great appraisers I can refer you to!
If you are looking for an appraiser in another part of the country, I encourage you to go to www.findmyappraiser.com. (Click Here)This is a site in which you can find an independent appraiser in your area, who will be able help you.
As always, thanks for reading my article this week! I hope you found it interesting.
Here are some links to other articles and videos I enjoyed recently! I hope you will also…
Knitting and Ironing A New Housing Sweater – Housing Notes by Jonathan Miller
How do you know how much the market has gone up? – Sacramento Appraisal Blog
A Handy Home Appraisal Checklist For Homeowners And Agents – Birmingham Appraisal Blog
How Do I Future Prepare? – George Dell’s Analogue Blog
Who needs an appraisal more than someone selling to an iBuyer? – Yolo Solano Appraisal Blog
Geckos & Summer Housing – July Newsletter – SW Slater Appraisal Blog
Rates Going Down?; Appraiser Boards; AVMs Misunderstood? – APPRAISAL TODAY
Hi Jamie, interesting analysis. I’ve found the AVMs get location influences wrong frequently too. In my area, public records for multi family is unreliable also. How many of these appraisals had listings for Zillow to work with? Seems their algorithm is significantly affected by current listings…
And thanks for the link.
Thanks Joe! I agree with you on all counts. And there is no question that Zillow is influenced in a major way by a what a property is listed for. The problem is that a person can list a home for whatever they want. That does not mean that the value is there. I was also happy to share your article also! It is going to be interesting to see what happens with iBuyers.
Great job here Jamie. This was interesting. A few of your examples show how spot on an AVM can be, but then there are examples that completely debunk that idea. It’s very hit and miss. I actually tend to check a few different valuation sites during my appraisal process to prepare for inevitable conversations about why my value is different. This is simply where many clients are coming from because they look at these sites and have a very hard time thinking beyond the “ballpark” value that is listed. This is for private work – lawyers, CPAs, owners…
Thanks so much Ryan! I totally agree with you. It is so hit and miss. I do the same with my non-lender clients. The beauty of being appraisers is that we can actually explain what we did and why we did it. Nonetheless, many of the public still put a lot of trust in some of these automated valuations.
I linked to your article from Appraisal Today. Very interesting. Thanks for your efforts. The article seems to imply that the appraiser’s value estimate is the most accurate. While I would agree that independent appraisals are more accurate than an AVM, they are all estimates. To take this analysis a step further, I would suggest using appraisals that were prepared in advance of a sale, preferably in advance of the listing. Say, a corporate relocation appraisal, estate appraisal, or a pre listing appraisal prepared for an agent. Once the property sells, the market will tell us which estimate was the most accurate.
Thanks for writing in! I agree with you that appraisals are estimates. I will say that sometimes homes sell for more or less than what is considered the most probable selling price, based upon the definition of market value. An appraisal does rely upon competing properties that have sold. So, those sales are telling us what the market is doing. Of course, if the market is changing, we make time adjustments to reflect this and to reflect the current market as of the effective date of the report. I do also agree that having an appraisal completed before a home is listed is advisable. I do perform relocation pre-listing and estate appraisals. Thanks again for writing in and sharing your insights. I truly appreciate it!
Hello again! I thought I had better clarify and correct my original response to you. Appraisals are actually opinions of value, not estimates. Appraisals are not an appraiser’s estimated opinion. They are the appraiser’s opinion. That opinion is generally in a range. Although, in most appraisal forms, a specific value opinion is asked for. But the values we appraisers develop are our opinions, not our estimates. That being said, I understand what you are saying by using the term estimates. To the point I think you are trying to make, an appraiser’s opinion is not the end all be all market value for the property. However, our opinions of value are developed based upon the data that we pull and analyze, and are, in our opinion, the most probable sales price of the property being appraised, under the definition of market value.
Merriam Webster defines an estimate as: to judge tentatively or approximately the value, worth, or significance of. Is an opinion of value synonymous with an estimate of value? I’ll leave this debate to others. You and I can each appraise the same property and reach a different conclusion. The relocation company would determine who is more accurate by comparing each of our appraised values to the ultimate sales price. My main point is that the market would provide a superior benchmark for judging accuracy. An appraisal is typically an opinion as to the price that a property “should bring”. The sales price is the price that the property “did bring”. Again, I enjoyed the article/blog. Thank you very much.
Nice point Tom! Agreed. Thank you!
How did you get the AVM information? I would be curious to try this.
I used Realist. Realist is owned by CoreLogic. My MLS system provides access to Realist as a supplementary data source. If you print out the full Realist report, in it you will see their value for the property.