As an experienced real estate professional, I've encountered that home owners who are considering selling or refinancing their home check their home valuations on the internet by typing in the search bar "How Much is My House Worth?" It’s a fast and easy way for homeowners or prospective buyers to get a ballpark value for any given home. There are a number of variables that will impact the selling price of a home and an online home estimate tool aka Automated Valuation Models (AVM) is not the most accurate source for the real estate sales. Below I'll discuss Automated Valuation Models (AVM), Comparative Market Analysis (CMA), and illustrate which is best for determining the real price when listing a home for sale:
Side-by-side AVM comparison
What is an Automated Valuation Models (AVM)? AVM's are programs that automatically analyze various data points to produce an estimated value of a specific property. Online visitors can visit an AVM website (the most famous is Zillow’s “Zestimate”), type in a property address, and the AVM engine will use linear and multiple regressions to form an estimated market value. The AVM's algorithm typically uses the age of a home, current market values, area trends, historical data, specific features of the property, and so on.
Although it’s well-known that AVMs can be speculative and inaccurate, it’s a good idea to examine what the various websites are listing as the current value for your home.
In most cases, there are noticeable differences between the valuations. Many prospective sellers are shocked to see the spread between the numbers, which then allows a real estate agent like myself to explain how AVM's work and how the data can be misrepresentative based on the property’s actual condition and upgrades. In our market, three readily available AVMs are:
As I wrote this post, I tested and ran the numbers on a home close to mine that had not been on the market for years.
- Zillow put the value at $567,100
- Redfin came in at $524,506
- Realtor.com was at $589,400
- Homes.com was at $563,568
As you can see, an AVM, in it of itself, is not an effective way to value a property. Although one AVM for any given property might be close to reality, there is usually a wide disparity when comparing a few AVMs side-by-side.
Automated Valuation Models (AVM) Comparison
AVM's by any website can fluctuate dramatically in a short period based on what is happening in the local market. We use the following example from a home we recently sold:
As an example, the initial Zestimate for a home we recently sold was $692,000. Based on the level of amenities, we listed the home at $649,000. Within 4 days we received 7 offers, we went into contract and a week later the Zillow Zestimate dropped to $645,000.
In the meantime, realtor.com showed the value at $633,400. 60 days later, the Zestimate showed the value to be $695,000 while Redfin placed the value between $710,000.
Any AVM will be averaging home values in any given neighborhood based on historical sales — not property condition or the level of amenities of any specific home. AVM valuations are speculative and therefore cannot be used to accurately value a home. For this reason, appraisers will never use AVMs to provide market values for any given home.
Difference between an AVM and a CMA
Our AVM spreadsheet explains, the best and most accurate valuation for any given property will be a Realtor’s Comparative Market Analysis (CMA). Instead of simply looking at overall market trends and a home’s configuration, a CMA takes into account property conditions, amenities, upgrades, condition of the overall neighborhood and other specifics that an AVM cannot effectively address.
The CMA platform we prefer to use is MoxiPresent because it’s possible to include all of the pictures from every property included in the CMA. Using all the images helps sellers quickly understand the difference between the various homes, and it further accentuates why AVMs are unreliable.
There is a big difference between the value of your home and the introductory offered price which will be used to market to buyers who are looking to move into your community.
The number you see in our CMA is the recommended introductory list price if you chose to go on the market the day of our meeting. Real estate cycles changes every 30-45 days and in some cases sooner. We will have to rerun the CMA numbers the day before we go live on the market to ensure that we our list price is correct. Even then, the final price you receive is going to be contingent on:
- Real estate market conditions - Homes For Sale, Pending Sales, Sold Homes (last 3-6 months), Days On Market (DOM)
- Professional staging, if applicable
- Marketing (Photography, Print Ads, Online Ads, E-Mail Marketing, Telemarketing)
- Interest Rates
- Appraisal - An estimate of value as of a certain date that is supported by objective data and is valid for 12 months
- Is it a Seller's Market - when demand exceeds supply; there are interested buyers, but the real estate inventory is low.
- Is it a Buyer's Market when supply exceeds demand; there is high supply of real estate inventory and a shortage of interested buyers
A Note Of Caution
Any real estate agent on any given day can promise you that they can get you a specific price. Unfortunately, this is simply not true. If a real estate agent promises you that they can get you a specific price, it's considered real estate malpractice. It's a tactic which is often used to secure the listing agreement at a high price and lock you into a multiple month contract. Then the real estate agent will attempt to do price adjustments week after week until it's priced where it should have been priced from the very beginning. The real estate agent that employees this tactic is “Buying your listing.” It's deceptive and misleading. As a home owner who wants to sell their property, you deserve the truth!