Automated valuation models (AVMs) provide instant property valuations. They are an algorithm-based tool based on mathematical formulas, property databases, and property characteristics. Used by homeowners, real estate professionals, underwriters, mortgage lenders, investors, and anyone who wants a quick property valuation, AVMs are available on digital platforms. They vary in their sophistication depending on the needs of the end-user.
Read on to learn how AVMs work, who uses them, where to find them, and how they serve the world of real estate.
What Is an Automated Valuation Model (AVM) in Real Estate?
An automated valuation model (AVM) is an algorithm-based tool to determine the value of a home or property. The models use property data including information on local real estate and the neighborhood combined with mathematical or statistical modeling to estimate a property’s value.
Property AVMs are available on real estate platforms popular among homeowners, such as Trulia.com, Realtor.com, and Zillow, but more sophisticated AVMs are provided at a cost for institutional users. Some platforms also provide rental AVMs that predict potential rental income for properties.
How Do AVMs Work?
An AVM accesses a wide array of publicly available and user-sourced data, such as property type, size, general location, and comparable property sales to provide an immediate value estimate. AVMs then use a machine-learning algorithm to compare a home against a massive dataset of other homes to estimate its value.
AVMs can make numerous calculations and comparisons in seconds, and they are cost-effective because there is no need for an appraiser to visit a property. That said, most financial institutions and underwriters still require a traditional valuation by a licensed appraiser.
That’s because, for all its mathematical genius, an algorithm cannot take into account a property’s state of repair, its exact situation (proximity to public transportation, parks, zoning, etc.), or future changes planned for the surrounding neighborhood.
Depending on what tool or platform hosts the AVM, the same property can have different estimates. Each AVM uses its own proprietary data and models for property evaluation, and the precise formula will vary. For example, one AVM might value an additional bathroom slightly higher than another causing one AVM to value a home at $300,000 while a second AVM values the same home at $325,000.
An AVM in real estate is an estimate that is only as accurate as the property details in the database it accesses. If the data is outdated or inaccurate, the AVM will likely produce inaccurate property valuations.
The property data that an AVM typically uses include the following:
- Property sales history
- The year the property was built
- Tax assessor’s value
- Property features like size and number of bedrooms
- Sales history of similar properties (comps)
- Square footage of the home
- Neighborhood crime statistics
- Local school district ratings
- Market trends and seasonality
Where Can You Find More Sophisticated AVMs?
Sophisticated AVMs that incorporate granular, detailed data are designed by leading data providers like the ATTOM AVM. While sites such as Realtor.com, Redfin, Homes.com, Trulia, and Zillow offer free AVMs, ATTOM provides advanced, comprehensive AVM solutions that are available through a range of commercial platforms
AVMs Are Not Perfect
AVMs are useful, but most mortgage lenders and underwriters still rely on a traditional valuation carried out by a licensed professional valuer. That’s because AVMs typically do not factor in less-discernible information that can affect a property’s value. For example:
- Where the property sits on a busy street or cul-de-sac
- Whether the property is close to nearby public transportation
- The quality of the local school district
- Zoning
- Access to parks, beaches, and jogging trails
- Community news
- Potential economic factors, such as large employers coming to the area
The Pros and Cons of Property AVMs in Real Estate
AVMs may not serve every consumer, but their advantages make them a valuable tool for rapid property assessment. Here’s a summary of the pros and cons of AVMs in real estate.
Advantages of Using AVMs in Real Estate
AVMs offer a faster and easier way to estimate a property’s value. An AVM saves time and effort when you need an initial estimate fast or want to know whether a property is overpriced.
- Traditional appraisals require an on-site visit, which can take several hours and is expensive. AVMs are a more cost-effective option.
- Human error that may be introduced by a licensed appraiser is eliminated.
Disadvantages of Using AVMs in Real Estate Property AVMs
- AVM estimates are only as accurate as the property details in the database it accesses. If the data is outdated or inaccurate, the AVM will produce inaccurate property valuations.
- An AVM does not include a physical inspection of the property to assess its condition. How well-maintained a property is can significantly affect its value.
- An AVM might not consider “hype” characteristics or recent events.
- AVMs use comparable properties to set a value, but if the target property is unique, the AVM value may be less accurate.
AVMs Vs. Traditional Home Appraisals
An AVM is conducted using a math-based algorithm. In contrast, a traditional home appraisal is conducted by a licensed appraiser who physically inspects the property. That can be both good and bad because the appraiser might make mistakes.
AVMs are objective and remove bias from the valuation equation. Therefore, there’s less risk of fraud or deliberate mispricing.
The table below highlights the main differences between an AVM and a full, traditional appraisal.
| AVM Estimate | Full Appraisal | |
| Who determines the valuation? | Automated computer algorithm | Licensed appraiser |
| How does the process work? | Finds similar homes from public records and historical sales data to estimate a home’s value | Uses comparable property data, a walkthrough to evaluate the condition, and a specific costing model |
| What is the output? | Value estimate with limited information about how it came to the value | Detailed report, including which method the appraiser used, and a list of recent, comparable properties |
| How long does the appraisal take? | Estimate available immediately | Appraisal report typically takes 6–20 days |
| How accurate is the appraisal? | Ballpark accuracy, limited to publicly-available data | The most accurate way to determine your home’s value |
| When is its used? | In the beginning, to get an idea and start making plans | As part of the sale’s process, typically required by the buyer’s lender |
Who Uses AVMs?
AVMs are used throughout the real estate industry, by real estate agents, brokers, and mortgage lenders. But they also serve other professionals who are interested in property valuations. For example, insurance companies, home service providers, government researchers, and policy makers.
AVMs are used for mortgage and home equity loan underwriting, refinancing, and to aid in loss mitigation and credit risk management. Commercial users of AVMs, such as mortgage lenders, underwriters, financial institutions, insurers, and government agencies are more likely to use platforms like ATTOM, Freddie Mac, and Equifax that have more sophisticated AVMs.
Real estate professionals use AVMs to determine a preliminary property price. If a homeowner wants to sell their home without using a real estate agent, they can use a free AVM before placing their home for sale on a site like iBuyer.
AVMs in a Nutshell
AVMs are excellent tools for those looking for a preliminary valuation for a home or property. They are perfect for homeowners, real estate agents, and investors who want an idea of a property’s value immediately. However, AVMs are limited in some areas, and mortgage lenders and underwriters prefer to rely on traditional appraisals conducted by licensed professionals.
