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AVM’s…The Wonder Bread of Value

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When you were a child, do you remember your parents making you a sandwich on Wonder Bread? The bread was as so light and fluffy. It was like a little slice of heaven. It was everything a child could hope for in a sandwich. Not only was it delicious, but it was advertised as being healthy as well!  

Was Wonder Bread healthy? Was it full of nutrition? Or, were the promises half- baked?


Have you ever heard the saying, “It’s the greatest thing since sliced bread”? Interestingly, Wonder Bread was one of the first breads to be sold pre-sliced. In May of 1921, Wonder Bread made its debut. It was created by the Indianapolis’ Taggart Baking Company. In 1925, Continental Baking Company purchased Taggart and took Wonder Bread national.

Photo Taken From Wikipedia

The bread was “enriched” with fine flour. By its very definition, when something is “enriched”, one would assume that it is made better! Sadly, that was not the case when it came to the enrichment of Wonder Bread.

At that time, during the processing of Wonder Bread, vital nutrients were stripped from the bread when it was bleached and processed. This left the bread with almost no nutritional value. But it look and tasted great!

In the 1940’s the government set up a program requiring certain vitamins and minerals to be put back into the bread to help combat certain diseases. Clearly, the original enrichment process made the bread less healthy.

In the 1950’s Wonder Bread was again advertised as “building strong bodies 8 ways”. Then, in the 1960’s it was advertised as “building strong bodies 12 ways”. Over the years, the ingredients in Wonder Bread have changed, to make the bread healthier. For instance, according to Wikipedia, where much of the information in this post came from, in 2009, the bread was “reformulated”, adding more calcium and vitamin D. I’m not an expert on the matter, so I really can’t say one way or another.

What does Wonder Bread have to do with AVM’s? Before I get a rise out of you, let me get to the similarities. 


Like the Wonder Bread of yesteryear, AVM’ have been touted by many as being, well, the greatest thing since sliced bread. They are a relatively new phenomenon. You just type in the address of the property and voila, up comes a value on your screen. AVM’s are advertised as being enriched with the benefits of technology. However, like the “enrichment” process of Wonder Bread, at least in its early days, AVM values may not be a healthy choice, if someone is trying to determine the value of their home. That is, if they need to rely upon that number to make an important decision. 

How do AVM’s work? AVM’s apply algorithms to market sales data in order to establish a value.  The truth is that they seem to be getting more accurate in some cases. In fact, some companies are beginning to use them in their decision-making processes. For instance, when it comes to buying a home, iBuyers rely heavily on them when deciding how much to offer to buy a home for. (See my article “iBuyers… The Pawn Shops of Real Estate)

AVM’s are presented as being very accurate. Thereby, being a reliable way of determining the value of a home. Have you ever wondered how the AVM came up with the number?

Did you know that algorithms’ have bias baked into them? How so? The creators of algorithms are people. And people can be biased. There was an interesting article in Bloomberg Business Week entitled, “How the Algorithms Running Your Life Are Biased“. (Click here to read) In that article, it made the following statement…

“The hope was that computers trained to find patterns in vast pools of data would make such decisions more objectively than humans do. Instead, researchers are finding that Algorithms — the logic at the heart of software programs — can replicate and even amplify the prejudices of those who create them.”

Not only can these programs be biased, I also wonder where they pulled their data from? How does the computer determine which data to use and which is junk? That can all make a big difference in their value outputs.

Can you think of a couple of companies that have created AVM’s? Zillow & Redfin to name a couple. I’m not saying that their intentions are bad. Honestly, some of the data these companies provide the public with, is very helpful. However, when it comes to property valuation, over and over again I have seen that their value outputs can be really unsupportable.

For ten examples, please read an article that I wrote last year entitled, “Appraiser vs. AVM vs. Zestimate…Ten Properties”. In that article I make a comparison between my opinion of value of homes that I have appraised vs. those of several AVM’s. Sometimes they were close, but not every time. 

I thought that I would pull some new numbers and see if AVM’s have improved since last year. I used six properties that I had appraised consecutively. I did not cherry-pick sales to make my case.  The following are the results…


Property location – City of Independence (Lower Density Suburban)

Type of property – Single-Family Residential

My opinion of value – $555,000

Zillow’s Zestimate – $599,900

My comments This property’s gross living area is approx. 500 sq. ft. smaller than public records reflect.  This was a purchase. Interestingly, Zillow’s price was about the same as the listing price. 


Property location – Cleveland Heights (Higher Density Suburban)

Type of property – Single-Family Residential

My opinion of value – $95,000

Zillow’s Zestimate – $74,636

My comments – This property had some recent updates. However, nothing out of the norm for this area. This was a refinance. 


Property location – Northfield (Lower Density Suburban)

Type of property – Single-Family Residential

My opinion of value – $314,000

Zillow’s Zestimate – $359,231

My comments – This was a refinance. This property had a lot of renovations made to it, in recent years. It was a single-family home that was illegally converted into a two-family. Since legally, it was only able to be used as a single-family dwelling, its Highest & Best Use was as a single-family dwelling, which is what I appraised it as. AVM’s don’t look at zoning ordinances, nor do they perform a Highest & Best Use analysis. We’ll talk about that later in this article.


Property location – Moreland Hills (Lower Density Suburban)

Type of property – Single-Family Residential

My opinion of value – $2,132,000

Zillow’s Zestimate – $2,016,213

My comments – This was a refinance. This property had some recent renovations made to it. It is noteworthy that in this area, there are a relatively small number of truly comparable sales that have sold in recent years. They all were similar in terms of gross living area, lot size, quality and condition. So, it’s not surprising that the values are fairly similar, in the grand scheme of things.  


Property location – North Olmsted (Higher Density Suburban)

Type of property – Single-Family Residential

My opinion of value – $76,000

Zillow’s Zestimate – $130,310

My comments – I appraised this property for a private client, for estate planning. This home was in poor condition. It needed to be gutted and renovated, due to its condition. I had very good comparable sales that needed comparable work. Interestingly, my client, was surprised that my opinion of value was as high as it was. That is, until I showed them the MLS information on the comparable sales that I used. The MLS photos clearly showed that some of the comparable sales I used were in very similar conditions. Investors are buying properties, in this area, in poor condition, and then renovating and reselling them. Due to the shortage of inventory in this area, even homes in poor condition are selling fast, and at a price that may be surprising to some. Zillow’s price is reflective of a home that is in good condition. 


Property location – Cleveland (Urban)

Type of property – Single-Family Residential

My opinion of value – $182,000

Zillow’s Zestimate – $252,096

My comments – This property’s quality of construction was average. It had no major upgrades and needed of a lot of cosmetic work. Homes selling at the price that Zillow is reflecting, offer many more upgrades, as well as conditions that are considerably superior to the home I appraised. I completed this assignment for a tax appeal. I think they have a strong case, as this property was assessed for closer to Zillow’s price than my opinion of value. I have strong market support to make the case.

I hope that you found this analysis helpful. These sales demonstrate number of weaknesses with AVM outputs. Let’s talk about what goes into an AVM’s value vs. that of a licensed or certified real estate appraiser.  


As noted earlier, AVM data is pulled from different sources. Of course, those data sources are not shared with the user. Was the data pulled from the subject’s neighborhood, or other surrounding areas? Does the AVM have accurate information about the condition and physical characteristics of the home? Can it determine if a use is illegal? All these things have a direct impact on market value.    

AVM’s simply use mathematical formulas to spit out a number. There is no analysis involved. And the AVM will not offer any explanation as to how the value was derived. Take it or leave it. AVM’s leave their users wondering how they came up with the number. They are easy to use. But there’s not much to them.

I had a homeowner call me up a couple of weeks ago. He said that last year, they tried to sell their house on their own. They used Zillow’s Zestimate as their asking price. They couldn’t sell it. Clearly, Zillow’s number was too high. They realized that they needed to hire a real estate appraiser, who is qualified to develop an opinion of value that is supportable. 

How does the work of a licensed or certified appraiser differ from that of an AVM?


In a real estate appraisal, there is lot of analysis that goes into the development of the appraiser’s opinion of value. 

The appraiser begins by analyzing the neighborhood. We analyze the economics of the neighborhood. Are values increasing, decreasing or remaining stable? We must determine why this is the case. We will analyze the supply and demand of property inventory, which helps to get a feel for what the market is doing now, and how it is likely to behave in the near future.  We will analyze how long it takes most properties to sell in that neighborhood. The analysis of this information helps the appraiser to see where the subject property fits into the narrative of the neighborhood, in terms of value, so that we develop an opinion of value that is supportable and truly reflect of the market.

Appraisers also perform a highest and best use analysis. This is an extremely important analysis in the development of an opinion of value. There are four main questions that an appraiser will answer in this analysis. (Which may lead to more questions) 

Is the subject’s use legally permissible?

Is it physically possible?

Is it financially feasible?

Is its use most profitable

Why is this analysis so important?

Let’s say that a home was originally zoned for residential use. Later, the municipality changes the zoning to commercial. There is a possibility that if the home were to be destroyed, or resold, that it may no longer be able to be used as a single-family home. Would that effect the value? Very likely, yes! Will an AVM be able to determine this? 

Here’s another example. A home is built with zoning requiring a specific minimum lot size. Later, the zoning is changed so that minimum required lot size is larger than the subject’s lot size. What if the property is destroyed? Can it be re-built? Or, is the Highest and Best Use of the property now only vacant land, or some other use?  

Speaking of land, what if a vacant lot is smaller than the zoning requires it to be, in order to be used as a lot upon which a dwelling could be built? The value of that land would be relatively minimal. However, if the vacant lot was large enough to legally build a dwelling upon, the value would be likely be considerably higher. 

What if a property has a large lot? An appraiser will make an analysis as to whether it is feasible to split the lot into a second “buildable” lot. That analysis plays a large role in developing a supportable opinion of value. AVM’s don’t provide a Highest & Best Use analysis. So, their value may be seriously flawed.

Typically, when an appraisal is ordered, the appraiser will inspect the home being appraised to determine what the condition is. Can an AVM detect the large hump in the floor, indicating major settlement? Can an AVM notice the black mold-like substance growing on the basement walls? Will an AVM catch the roof with three layers of shingles, which are so bad that the shingles are curling up? Will an AVM know if a home needs to be gutted due to its condition? 

What about the gross living area of a home? Typically, an appraiser will measure the home they are appraising, to ensure  they are basing their opinion of value on accurate information. Can an AVM do that?

Not too long ago, I appraised a home for a tax appeal. The home was considerably larger than the county auditor’s data reflected. For this reason, my opinion of value was higher than the home was assessed for. While I was not able to help the homeowner lower their taxes, what if they use an AVM to determine an asking price to sell their home for? The AVM would no doubt use the public record’s smaller gross living area, to determine the value. Food for thought, isn’t it?

Speaking of gross living area, I appraised a home this week where the County Auditor reflected the home as having approx. 2,700 sq. ft. of gross living area. The home is under contract for $350,000. I physically measured the home and estimated the gross living area to be approx. 2,200 sq. ft.. The second floor of the subject property is considerably smaller than public records indicate. Part of the reason for this is that a relatively large portion of the second floor is open to the first floor. This was not reflected in the public records.

Based upon my research, the market price per sq. ft. is $95 in this area, for homes comparable to the subject property. My opinion of value was $300,000. Here’s the interesting thing. If the subject had really offered 2,700 sq. ft. of GLA, my opinion of value would have been pretty close to the contract price. You can do the math. $95 per sq. ft. multiplied by 500 sq. ft., which is the difference between what public records reflected and what the actual GLA was, and you get $47,500. That’s a big difference in value! It was also reflected in the sales in this neighborhood. Would an AVM have caught that? This is also a good reminder for agents. It’s important to have an accurate idea of the gross living area of the home, before pricing it.

I could go on and on about the analysis that appraisers perform as part of the development of an opinion of value. I mentioned several of them, but there are many more! They all contribute to an opinion of value that is supportable. Valuation is more than just spitting out a number. It’s more than just using an algorithm. 


Do you need to know the value of a property? How will you obtain this information? The choice is yours! An AVM, like Wonder Bread, is fun, light and fluffy.

It’s results can be delicious at times. However, after having discussed this information, it is clear to see that AVM’s are stripped of any kind of judgement, reasoning and analysis.

Is it worth risking one your largest assets, namely your home, by relying on an AVM when making an important decision?

Speaking of value, remember, you get what you pay for. AVM’s are free. While real estate appraisals are not free, they are loaded with research and analysis that truly enrich the appraisers opinion of value. With an appraisal, the user doesn’t have to wonder how the value was developed, because it is explained in the report. And, if it’s not explained in the report, you can always ask the appraiser any questions you may have. They will be happy to share that information with you, if you’re their client. 

As always, thanks so much for being here!

Be safe out there! Here’s a reassuring song from the awesome Bob Marley.

If you feel panic setting in… just play this little song. 



Looking for a qualified real estate appraiser in your area? Go to

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Here are some links to other articles and videos I enjoyed recently! I hope you will also…

The Physical Graffiti Of Housing – Housing Notes by Jonathan Miller

Is Your Home Exterior FHA Compliant – Home Value Stories (PODCAST)

Perfection is now REQUIRED! – Voice of Appraisal with Phil Crawford (PODCAST)

Coronavirus & the housing market – Sacramento Appraisal Blog

7 Reasons Your Appraisal Came in Low – Birmingham Appraisal Blog

What is an Appraisal Cobra Farm? – George Dell’s Analogue Blog

The Appraiser’s SWOT Team, with Craig Morley – The Appraiser’s Advocate with Tim Andersen (PODCAST)

Adjustments – Appraiser Personalities – Data Standards – APPRAISAL TODAY

How Important is the Design and Transferring an Appraisal – The Appraiser Coach (PODCAST)

It’s Time to Get Lean! – Part 2 – The Real Value (PODCAST)

How Do You Measure? It May Be Changing Soon – The Appraisal Report Webinar



8 thoughts on “AVM’s…The Wonder Bread of Value”

    1. Thanks Joe! I see this out here also. I don’t know why some put so much faith in the Zestimates. I think some feel like valuation is easy. Most have no idea the work that goes into an appraisal. Perhaps through education, people’s perception will change in time. I hope you are doing great my friend!

      1. It’s important to explain our role. I really appreciate how well you do it on your blogs and the podcast. Folks like you, Ryan, Bill, Tom, Phil and others really help the rest of us. Take care.

  1. I see the same thing Joe mentioned above. I find attorney clients (and their clients) often expect me to respond why the appraised value is different than Zillow. We are living in interesting times.

    On a different note I have not had Wonder Bread in years. And I have not missed it either….

    1. It is interesting that even attorney’s are also asking for some explanations regarding the appraised value vs a Zestimate. Interesting times indeed!

      LOL! I’m in the same boat regarding Wonder Bread. I can’t remember the last time I has it. I think it was when I was a child. I don’t miss it either. 😃

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