Automated Valuation Models (AVM) – Consistently Wrong Estimates

How many years has it been since you saw the first automated valuation model online?  It’s been quite a while I can tell you and they are not without their benefits.  It’s easy to look at your neighborhood and even your home online and get an idea about what is going on.  The sites provide listings, pending sales and even sales information in seconds is all up there at your fingertips, but will their estimate give you an accurate sense of market value.  The answer is no and even the major online sites admit that they don’t do a very good job of estimating value.

Why don’t the online sites do a good job of estimating value?  It simple really, real estate markets are dynamic they are constantly changing.  As soon as the computer model says properties are up 1.0% and they add that to the sales they deem comparable the market has moved in the opposite direction and the AVM may be off by 20%.

Do the big online websites care if their real property estimates are off?  Not really, they are making the big bucks via their advertising, that’s what it’s all about.  They really don’t care if the estimate that they provide to you online is consistently wrong, and data indicates that they only get close to market value maybe 30% to 40% of the time.  You may be drawn to their site to see neighborhood activity because it makes you feel good to see your home estimate going up, but don’t take the estimate to the bank, they will just laugh at you.   

If the AVM sites were correct 70% or more of the time the real estate appraisal business would probably see more of a negative impact than they have, but in 2016 there are no worries, they just can’t do it.  I’m not saying that it won’t happen in the future with a large enough dataset or fast enough computers, but we still appear to be a long way off.

What does that say for a commercial AVM?  It says that you are not seeing one because whoever puts it out there will be embarrassed when they launch it.  So if it’s a big commercial brokerage firm or a big commercial data service they will look foolish missing commercial property values by hundreds of thousands to millions of dollars.

So as an appraiser when you see the next new automated valuation solution don’t hold your breath, you will likely be retired before there is any threat to the appraisal industry or to your appraisal business.

If you’re a real property owner don’t go to the online sites and think that you are coming away with an accurate value estimate.  You may have had a good time surfing around and looking at all the activity, which may indeed be accurate, but your bank and the federal government are likely going to want an appraisal.  They won’t rely on Internet AVM’s and you shouldn’t either.

For more appraisal information contact Glenn J. Rigdon MA, MRICS, ASA is a Las Vegas / Henderson Nevada based appraiser who can be contacted via email or via his business website known as Appraiser Las Vegas  (http://www.appraiserlasvegas.com), or you can also click on “Contact Us” on the home page of this website or visit my public profile at LinkedIn at http://www.linkedin.com/pub/glenn-rigdon-ma-mrics-asa/1a/30b/879/

Article source: http://www.appraisalarticles.com/Appraisal-Software/4595-Automated-Valuation-Models-AVM-Consistently-Wrong-Estimates.html