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AVM’s & Punxsutawney Phil’s Accuracy

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On Tuesday of this week, Punxsutawney Phil saw his shadow. Therefore, we have six more weeks of winter weather, by some predictions. Somehow, I feel like six more weeks of winter is a given. Especially in Northeast Ohio. How accurate are weather predictions made by folks who try to base future weather patterns on whether this little critter sees his shadow? I know it’s just for fun. 

In the article, “How accurate is Punxsutawney Phil?”, posted by EarthSky in Human World, according to the National Oceanic and Atmospheric Administration, from 2008 to 2018, our groundhog friend has only been accurate 40% of the time. Considering the silly notion that the groundhog’s seeing his shadow can somehow predict future weather, 40% accuracy is not too shabby in my opinion.

Groundhogs are not good predictors of future weather. However, they are adorable!

By the way, why do groundhogs pop up in the middle of their hibernation to take a peak outside? In a way, it’s all about research and advertising.

GROUNDHOG DATA COLLECTION AND ADVERTISING

Groundhogs emerge in February to analyze the mating landscape. They are trying to ‘collect data” to determine if there is another groundhog in the area to mate with when March rolls around. According to an article in ctpost.com, “Most of the year, male and female groundhogs are solitary and antagonistic against each other. They aggressively maintain a feeding territory around their burrows and rarely have any contact with each other. February is used to reestablish the bonds necessary for mating and ensures that mating can then proceed without delay in early March.

So, I take this to mean they are performing “market research” on the possibility of finding a suitable mate. They are also “putting out the vibe” in February, which will attract other groundhogs in March. So, a little bit of advertising is taking place I think.

AVM’S ARE GREAT MARKETING TOOLS

Just as groundhogs do a bit of advertising and market research, on-line AVM’s are used to do the same. Zillow, one of the most wide-known AVM’s has stated that their values are not to be considered as appraisals. Here is what Zillow states. I appreciate Zillow’s explaining this. Though, sadly some still view these types of value outputs as reliable.

So, why offer a valuation service that provides values that should not be relied upon? It appears that the valuations AVM’s provide are really instruments that are used to attract consumers to their sites, where they collect data on people’s searches, while at the same time offering other real estate services and information.

 

Zillow’s Zestimate Description and Disclaimer

 

AVM’s are marketing tools. Zillow, Redfin and other on-line services do provide the public with information that can be valuable, like market data and information on properties. They often include photos of properties as well as other helpful information. I have used some of this information in my appraisal work. Since many people are using these types of companies to sell their homes now, I have to now check with these sites to see if the home I am appraising is, or was, listed on one of these sites, in addition to the MLS. While these sites offer some great information, when it comes to the accuracy of home values, they are all over the place. Since AVM’s base their values upon data from the market, at times they can be accurate. However, they can also be very inaccurate.

WHY AVM’S ARE SOMETIMES INACCURATE

I wrote two articles about this in the past, where I demonstrate this. One is entitled, “Appraiser vs. AVM vs. Zestimate…Ten Properties”. The other is entitled, “AVM’s…The Wonder Bread of Value”.  AVM values can be accurate in areas where the home being researched for value, is very similar to other homes in the immediate area that have sold recently. Especially is this the case with condominiums or homes in tract developments. However, if the home is in an area where there are not a lot of truly comparable sales, or if the home’s location offers water frontage or some other beneficial aspect to its location, or conversely, an influence that is having a negative impact on value, these AVM’s are about is accurate as our furry little friend the groundhog, at least in my experience.

Additionally, if the condition of the property being researched is far superior or inferior to other homes in the area that offer similar physical characteristics, such as gross living area, style, lot size and so on, an algorithm is not likely to reflect these differences. That’s one of the reasons a human eye and human perception is still better. At least for now.

AVM’s may pull sales that are located in either vastly superior, or inferior locations, in comparison to the property being researched, which may lead to a largely inaccurate value output. Notice I used the term “output” and not opinion. An appraiser provides their opinion, based upon what they see. They can see the differences in location, whereas a computer algorithm cannot. That is a problem when it comes to accuracy.

So, their outputs may be based on inaccurate information, including gross living area, room counts and so on. Interestingly, in an attempt to be more accurate in their value’s, an article entitled, “How to inflate your house value on Zillow”, from cnet.com, explains how Zillow will allow a homeowner to submit information about their home to Zillow. (Click here for a link to where you can do so on Zillow). For instance, if a home’s kitchen was recently renovated, they can submit this to Zillow. That seems good at first. 

The problem I see with this is that homeowner’s can provide false information to artificially inflate Zillow’s valuation of their home. Furthermore, I have seen times in the past where the homeowner told me that their kitchen or a bathroom was renovated, when in reality, it had minor updates. This is not to knock the homeowner. It’s a matter of viewpoint. However, if reported inaccurately, this could potentially be a problem.

Additionally, what if the homeowner reports that they have more gross living area than they really have? Perhaps they inform Zillow that they have 3,000 square feet of gross living area instead of 2,000 square feet, because the homeowner is including their 1,000 square foot finished basement in their valuation? Problematic indeed!  If Zillow goes with the homeowner’s gross living area, it could vastly over value the home, because AVM’s don’t measure homes.

Relying on an AVM’s value instead of hiring qualified and knowledgeable appraiser may save someone hundreds of dollars. But it may cost them thousands of dollars in the long run. If you need to know the value of a home for a serious purpose, like establishing a list price, tax appeals, divorce, or some other important reason, relying on these types of valuation services can be dangerous. Spending a few hundred dollars could save you thousands in the long run!

BACK TO GROUNDHOG DAY

Is it just me, or does everyday feel like Groundhog day, since the pandemic began to impact us in March? Like the movie, that time loop eventually ended, and so will the pandemic at some point.

And, when it comes to the weather prediction this year, keep in mind that Punxsutawney Phil’s predictions are correct 40% of the time. This means that there is a 60% chance of seeing warmer weather in the next six weeks

Photo Creds to Unsplash

 

 

 

Thanks so much for being here! This week I leave you with a trailer from the beloved movie Groundhog Day. Enjoy!

 

 

Have a great weekend everyone! Be safe out there, and don’t drive angry! 

 


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

Lets Stick To Housing Because This Gamestop-Robinhood-Reddit Thing Is Too Confusing – Housing Notes by Jonathan Miller

The Children of Foreclosure – The Voice of Appraisal with Phil Crawford

Fannie New Appraisal Form Modernization – APPRAISAL TODAY

Overbidding in a Hot Real Estate Market – Birmingham Appraisal Blog

Are first-time buyers targeting 2-4 unit properties? – Sacramento Appraisal Blog

Unaffordable Affordability? – George Dell’s Analogue Blog

January Newsletter – 2020 Recap – DW Slater Blog

Protect yourself from the new Variants. – Covid Science for Everyone 

You are Larger and In Charge! – Tim Andersen, The Appraiser’s Advocate Podcast

 

 

4 thoughts on “AVM’s & Punxsutawney Phil’s Accuracy”

  1. I’m glad you fit in Bill Murray at the end. Though can I say I’m not a huge fan of repetitious movies like that. 🙂 Anyway, I appreciate you relating groundhogs with AVMs. I like how your creative mind works. Regarding AVMs, it’s wild how much clients rely on websites like Zillow. I regularly check the Zestimate because I almost have to anticipate writing my appraisal in defense of why it is different from the Zestimate. It’s the world we live in…

    1. Thanks Ryan! It is crazy! I just had a homeowner call me to say they were shocked that Zillow’s Zestimate was around $70k higher than my opinion of value. This report was for a bank, so I explained that I could discuss the matter with them, and that if I missed some sales that are comparable to send them to the bank. Par for the course these days. Hang in there my friend!

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