An AVM is the power behind a computer-generated valuation (sometimes called online 'valuations' or instant 'valuations') which combines technology with large amounts of property data and uses complex statistical analysis.
There are at least seven valid reasons why an AVM (or Automated Valuation Model cannot replace a human valuer.
REASON NUMBER 1
Is the house (i.e. the subject property) actually there?
Computers cannot drive by a house to see if it's actually standing where it's suppose to be.
REASON NUMBER 2
Are there unique features of a property that might add to or decrease its market value?
So a computer returns an estimated value of $850,000. Did it consider the power sub-station next door? The railway line nearby with each passing train causing vibration and noise at set times throughout the day? The school zone? The desirability of its tree-lined street versus the next street?
REASON NUMBER 3
How long ago since the last valuation?
Many AVMs and free online services rely on public assessment records. In Victoria, assessments are carried out every year. Hence, the value may be nearly 12 months old in that case and 12 months is often a long time in a fast moving property market. Some states mandate that an assessed value not increase beyond a certain percentage, even if sales activity indicates the property has appreciated far more. When you use an AVM you risk a lower value than reality.
REASON NUMBER 4
What makes the sales evidence comparable?
A computer might compare your subject property to another property with similar building area sold three months ago 300 metres away. Even if that "comparable" property is in a different, less desirable non-school zone, fronts a four-lane, 80 kph main road, and is flood-prone. Or even if the property was sold under duress, such as in a divorce situation, or not at arm's length such as to a family member. A computer simply does not know all the less objective adjustments that might need to be made to a "comparable" property's sales price.
REASON NUMBER 5
Is the market declining?
The Automated Valuation Model uses data from recent, nearby sales. If those sales were completed at the peak of a local housing market, the computer will think the trend is going up even if a professional appraiser knows that the overall neighborhood is beginning to experience a downturn. As a lender, don't get stuck with a property that's been overvalued by a computer.
REASON NUMBER 6
Is there a conflict of interest?
Free online home value calculators are often farmed out to real estate agents in your area, who use the service to get your listing when you decide to sell. The best way to do that is to impress you with their confidence that they can get a higher price for your property. If they tell you your property is "worth" the high end of what they believe they can sell it for, the theory goes, you're more likely to sign a listing agreement. With most things, it's best to "under promise and over deliver" — but the opposite is true when you use a free online home valuation service.
REASON NUMBER 7
What qualifications, accreditations, experience and training the preparer of the value has?
Getting your home value from an AVM is like dealing with a black box. You are relying on a value figure or value range spat out by a machine. You don't know the background of the people behind the algorithm, the robustness of the software and the integrity of the data used. When you work with a human valuer whom you can meet and have a conversation about your property, you can have the confidence about the valuer's credentials and expertise.