Article 1:  Seven Reasons why an AVM or Automated Valuation Model CANNOT replace a human valuer?

Lenders and brokers using AVMs and homeowners using free online home valuations to determine the value of a property need to know that there are at least seven huge reasons why an AVM cannot replace a human valuer.

Reason 1

Is the house (i.e. the subject property) really there?

An AVM is an electronic or computer generated valuation which combines technology with large amounts of property data. However, computers cannot drive by a house to see if it's actually located where it's suppose to be.

Reason 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 $450,000. Did it consider the power sub-station next door? The railway line nearby with passing trains causing vibration and noise throuighout the day? The school zone? The desirability of its tree-lined street versus the next street over?

Reason 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 two years - the value may be nearly two years old in that case. 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 or free online service, you risk a lower value than reality.

Reason 4  What makes the comparables 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 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 5 Is the market declining? 

Automated valuations use 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 6 Is there a conflict of interest?

Free online home values 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 value service.

Reason 7

What qualifications, designations, experience and education the preparer of the value has?

When you work with a Certified Practicing Valuer, you can be confident we're highly qualified, ethical and prepared to complete your assignment professionally and with good judgment. Most of the time, you don't know the qualifications of whoever is behind those free online values, and they couldn't compare to a qualified CPV's if you did. And if you're relying on an automated valuation, you're not getting the benefit a CPV's education, experience and expertise.

 Adapted by Joseph Lee


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