What is a Real Estate AVM?
This article outlines the basics of real estate AVM, its pros and cons for property owners and real estate businesses.
Since Zestimate Zillow's launch, AVM has become an integral part of advanced real estate technology. In real estate, AVM or "Automated Valuation Model" is an estimated market value for a house generated by a machine learning model. The process relies on mathematical modeling that comes with databases of current transactions and properties to estimate real estate value.
A majority of AVMs help property owners or real estate agents compare the costs and values of similar properties at a time. You might have seen several appraisers and institutions using this model to calculate and compare residential properties' values.
This is one of the many ways massive data influences the direction of commercial and residential real estate. AVMs input property data and sales prices into a machine learning model and help people create value estimates.
However, real estate AVM has been a controversial topic. It is particularly true for the real estate businesses that use this model to capture information and details of the potential sellers.
Whether you're a startup or run an established real estate business, learning what an AVM is and how it works for your business will benefit you.
What is an AVM?
As mentioned above, AVM refers to the "Automated Valuation Model." It is typically an automatic program that analyzes different property aspects to estimate or calculate its current value. Mostly, online visitors use property addresses to determine their existing values.
Real estate AVM's engine creates an estimate of the houses' market values by using multiple regressions. The data used by AVM includes various features such as overall market value, historical data, property age, trends, and other characteristics.
Automated Valuation Model- Why a Real Estate Business Needs It
Real estate AVM captures information of home-sellers because they are valuable leads. People who are interested in selling their property search for its value online. Moreover, solution providers like Zillow Zestimate sell AVM different versions. Real estate companies use those AVMs to locate interested sellers in their area.
Employing real estate AVM needs no manual effort. It is also an easy way to save a great deal of time and avoid human errors. According to Forbes, the risk of error with using AVM is below 4 percent for residential properties.
Pros and Cons of AVM
Like other technologies, AVM comes with its own set of pros and cons. Knowing how it may or may not benefit you can help you employ it for specific scenarios.
Take a look at the pros and cons of an automated valuation model to make an informed decision.
Pros
Choice of Consumers
AVM is a name that every home seller knows or is familiar with. People who are Zestimate users look for the information AVM provides to sell the house. They can obtain their property's value from AVM without having to go through complex real estate processes. That is to say, AVM is a safe way to get into the sales process.
Cost-efficient
Automation of a process aims at decreasing the cost, time, and effort required to perform it manually. AVM saves the cost of manual visits the appraiser requires to assess the house and the time it takes to compute the value.
Access to Valuable Leads
Leads are attractive for real estate agents whereas, they are difficult to capture digitally. The valuation model can be an efficient way to attract more leads
Minimal Error Risks
With a manual valuation, the undermined estimation risk is often higher due to the human error margin. AVM, however, uses a fixed set of databases. This increases its chances to estimate accurate value for the properties compared to the manual approach.
Cons
Misleading Estimates
AVM only makes estimation, and you should not replace it with an in-depth property valuation. It can't calculate the value like tools Comparative Market Analysis or in-home inspections can do. It is better to contact a real estate agent if you're an online visitor.
Area Wise Discrepancy in Estimation
It is worth mentioning that AVM values may go up and down depending on the availability of the records in certain areas. You may find some areas with more accurate values compared to others.
Automated Values
Because the values are automated, the model doesn't take any human element into account. There can be many intangible neighborhood changes to property improvements that AVM doesn't reflect in records.
Summing Up
Real estate AVM's can be a beneficial tool to obtain the current value of the properties seamlessly. Thus, it is better to weigh its pros and cons before using it for different purposes. Don't know where to start? Tools such as Zillow's Zestimate and SmartZip's AVM are a great resource to give you and your future clients the most accurate and updated home value. These models also provide other benefits, such as lead generation.