Real Estate Automated Valuation Models (AVMs)

What is an AVM in real estate?

An AVM, or Automated Valuation Model, is an estimate of the likely sale value of a property given current market conditions. It uses a combination of property characteristics, sales data, geographical boundaries, price trends, assessor records, and other data points to produce a property’s estimated value in the current marketplace for any location across the U.S.

Who are the consumers of AVMs?

AVMs are used by professionals across many industries and job functions. Real estate investors use them to find deals, assess risk, and ensure profits; agents and brokers use them to appropriately price properties before putting them on the market; and mortgage lenders leverage them in the prequalification process and when determining the best-fitting products for borrowers.

In the insurance world, AVMs can also be used to more accurately quote premiums for home insurance and other policies, and at a more general level, they can also aid in marketing, sales, customer service, and analytics efforts across a variety of industries and sectors. Many companies simply use AVM data to ease customer lift (maybe by auto-filling forms during the lead generation process) or to improve targeting and prospecting in marketing outreach.

How do mortgage lenders use an AVM?

Mortgage lenders typically use AVMs in the early stages of working with a borrower. First, they may leverage a property’s AVM to determine what loan program a borrower is best suited for. From there, they might also use AVM valuations during the prequalification process to more accurately estimate how much a buyer will need to borrow — as well as how much risk the transaction represents and what rate and terms the deal might call for.

How is an AVM calculated?

There are lots of data points that go into an AVM, as well as several models that can be used along the way. Most commonly, an AVM will start with comparable sales in the area (census block, tract, neighborhood, school district, etc.), and then go through a variety of valuation models, which use robust statistical metrics and algorithms to assess the property’s value.

Once complete, the property is given an estimated AVM value, a unique confidence score, and both a minimum and maximum potential value. This gives the user the most accurate, big-picture look at the property’s possible value.

Is an AVM meant to replace a property appraisal?

Though some appraisers may use AVMs as part of their evaluation processes, these estimates are not meant to replace appraisers. In fact, in the majority of cases, mortgage lenders require an official appraisal before a loan can be closed.

Regardless, AVMs can often be a great complement to the traditional appraisal. They’re also faster to acquire, come with no human error or bias, and may even be more accurate in many scenarios.

How often are valuations updated?

Valuations are calculated weekly as well as monthly. ATTOM’s algorithms use property and sales data sets, which always contain the most up to date information available. AVMs are then packaged and published to customers on intervals that are appropriate for their use cases.

How do real estate professionals use an AVM?

Real estate professionals generally use AVMs to more accurately price properties and to aid in negotiations. They also may use AVMs when deciding how to structure a deal (should they waive the appraisal contingency, for instance?) and in marketing their services and properties. Since real estate is a highly local profession, having detailed and granular valuation data can be a huge advantage in many ways for these professionals.

How accurate is an AVM?

AVMs that are based on a robust set of data points and go through a number of modeling techniques are generally quite accurate. At ATTOM, 70% of our valuations are within 10% of a home’s eventual sale price, and 82% are within 20%. Over a recent three-month period, the median difference between our values and the sale price was 3.5%.

We also provide both minimum and maximum valuations and offer a unique confidence score for each property. This allows users to get a big-picture view of a property’s value, as well as any potential for error up or down.

How much does an AVM cost?

The cost of AVMs varies by solution and the total coverage within the location being evaluated. Generally, a solution that delivers the broadest coverage of AVMs also offers the greatest discount.

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