Are Automated Valuation Models Accurate?

[et_pb_section admin_label=”section”] [et_pb_row admin_label=”row”] [et_pb_column type=”4_4″][et_pb_text admin_label=”Text”]

Automated Valuation Model vs. Traditional Property Valuation

Property valuation is essential and serves a variety of purposes. Whether it is about selling or buying a property, applying for loans in banks, taxation, or property insurance, you would first need to get an estimation of the value of your property.

Two models will help you calculate the value of your property. The first one is the Automated Valuation model, and the other one is the Traditional Property valuation, which involves physical inspection. Both the Automatic Valuation model and the Traditional Property valuation methods have their respective pros and cons. The article will compare both these methods and offer you enough information to equip you. 

Before we delve into the differences between these methods, let us get some idea of property valuation. 

What is Property Valuation?

Property Valuation means putting a price tag on your property. An appraiser considers many factors before he offers you an estimated value of the house. Here are essential things that would affect the appraisal.

1. The location of the property

Location plays a key role. If the locality is favorable, the property’s value would be high. Elements like schools, hospitals, restaurants, shopping centers, or even the aesthetic aspect would significantly enhance its appeal. A surveyor considers all these.

2. Layout of your property

The layout of your house is another crucial factor. The number of rooms and dimensions, availability of garden area, sheds or garage, and even parking spaces can determine the house’s value.

3. Renovations and Extensions

The valuation will also be affected if you have made any sorts of renovations, repairs, or extensions. It will also tell you if your house has scope for further renovations or extensions. In case of damage, the value will get reduced. However, this is applicable when you are dealing with a licensed appraiser and not an AVM. 

4. Kitchens and bathrooms can impact the price

Who would want a house without a proper kitchen and a bathroom? A fully functional contemporary styled kitchen and bathroom can raise the value of your property. These are essential, and potential buyers scout for these facilities. 

5. Interiors

Not only the dimensions or the number of rooms but even its interiors can impact the final valuation process. Glazing work, flooring, and even things like insulation and energy efficiency are essential elements.

6. Other factors also include:

  • Supply and demand for land and housing property in a given area      
  • Transferability of the property from one owner to the other      
  • Utility, which includes how it would benefit the future owners
  • Data on other nearby properties and how much they are valued
  • The information about how other properties in that area have been sold and valued

All these factors help to get a proper estimate of the property that is in question. 

Why would you need a property valuation?

Property valuation is needed to estimate the market value of the property. It is usually carried out by an estate agent or even by an independent valuer. Lending institutions or individual buyers employ them when they want to purchase a property.

Keep in mind that no law compels you to get your property evaluated. It is more to do with awareness. When you know what your property is worth, you would be able to take calculated measures. Whether it is buying or selling property, getting the house evaluated would give you a better grasp of what you need to do. 

Employing an appraiser would help you know the value of your property. Apart from getting an estimated value, it would also help you take measures to increase your land or building’s overall cost. After the valuation process, you would also get a legal certificate to validate your house’s value.  

Automated vs. Traditional

Property valuation can be done in two ways- 

Automated Valuation Model

When you get your property valuation through computer programs and software, it is known as the Automated Valuation Model or AVM. How this model function is that it collects various data that is available and compares them. After analyzing all the factors, it offers a particular range of estimation of the property’s value.

By employing these tools, a subject can get an estimated value quickly. AVM model considers records that tax, mortgages, sales history. It also provides information on the comparisons of various similar properties in question. Some tools also consider previous appraisals, the shift in house price, other and user inputs.

AVMs depend on various data inputs. Due to this, it may result in contrasting estimates for a single property. For instance, if the model tallies based on the records for the property previously sold, another would account for the period the subject built the house. Calculation of this sort could lead to estimates that differ by thousands of dollars. Besides, if specific information is missing from the database, it can notably affect the valuation process.

The AVM incorporates various mathematical formulae and algorithms. It comprises of two types of evaluation, a hedonic model and a repeat sales index. Once the program assesses the information, their results are estimated, studied, and reported as the final appraisal. The estimated value may vary depending on which AVM you employ to get the valuation. Here are some online AVMs you can check out PennyMac – Home Value Estimator, Zestimate, and Trulia Estimate.

Features of AVM

  • Different AVMs have their distinct characteristics. However, certain traits are common to each AVM. Some of its features are:
  • All the AVMs function with the help of a computer-generated program. They collect available data from the property database. As the valuation is generated using information available to the program, it requires comprehensive data to draw accurate conclusions. The accuracy of the valuation would depend on the kind of information the program has. 
  • If the AVM model is fed with faulty inputs, or if the mathematical formula is erroneous, the output would be completely incorrect. The estimated value would be wrong.
  • There are certain necessary conditions of how the AVMs work. It takes certain assumptions and works under that principal. All the properties are accepted as being in the same situation. It does not consider the damage to the property, nor does it take into account its repairs. The properties are not valued as per the state that they are found.  

Traditional Property Valuation

Traditional Property valuation involves a licensed appraiser to physically inspect the area and conduct a survey to determine the property’s value. The Surveyor does a thorough propping of the house, both internally and externally.  

The inspection involves: 

  • Getting a measurement of the entire building
  • Examining the building and evaluating the conditions of the buildings
  • Taking notes of any faults or repairs that the subject may have carried out
  • Tallying the number of rooms, evaluating the layout, garage, parking space, and any other valuable information
  • Once the Surveyor does everything; he then clicks pictures of the property, stamps them, and includes them in the report.
  • After he conducts all the inspection, the Surveyor will then collect and scrutinize the various data available to the property. Elements like zoning and planning restrictions are considered, and he even checks for the risks involved.
  • Finally, the property is compared to other properties to determine its market value.

 After everything is checked out, a property valuation report is handed to the owner. The document would include a legal description of the house together with the location and improvement features. Property valuation reports also have sales evidence to support the valuation. Other data, like current economic activity, cash rate, and elements that would affect the property market, are also included in the report.

Comparing Automated and Modern Valuation Model

  • The automated Valuation model is computerized. Unlike the traditional method, they do not require intensive labor where you would need a Surveyor to inspect the property personally. The conventional approach’s problem is that it requires more time, as an appraiser does everything manually. In the AVM case, you already have the database where you have most of the information you need. The program takes into account this data and calculates the estimated valuation.
  • The traditional method is more detailed and reliable. In the AVM case, as it uses previously available data, there are chances of errors, coupled with this, the information might not be up to date. All these factors might affect the valuation of the property. The traditional model, however, relies on the Surveyor’s inputs. The Surveyor spends time evaluating the information and evidence he collects, giving a more accurate valuation.
  • The AVM mode is cheaper. As it is a program, the service’s cost is negligible in comparison to the traditional model. Employing the services of a certified appraiser does not come cheap. You would need to pay for the services he provides. AVM would give you a valuation at a much less expensive rate. The process is also quick and straightforward.
  • AVM mode does not include all the factors. As it takes an average estimate of the property, the program does not consider the house’s condition. The price is neither reduced due to damage nor increased due to renovations. However, a licensed appraiser would note down all the minute details. He will consider all the small details to give a better valuation. The AVM model also leaves out the buyers and sellers. The method excludes elements like an individual’s preferences and tastes. On the other hand, a Surveyor gets personally in touch with the individual. The interaction allows getting a better grasp of the valuation process.
  • As the AVM model is entirely dependent on the computer program, it is objective. On the other hand, the traditional method is subjective as it involves an appraiser who has the freedom to rate the property based on his personal opinion and judgment.


After weighing both the models on the scale, we can conclude that both have their advantages and shortcomings. Keep in mind that we cannot substitute the traditional model with the AVM. Homebuyers across the nation employ AVMs to get an idea of the property. AVMs are cheaper, quicker, and readily available. However, the issue here is everyone does not accept AVM estimates.

The main problem is its reliability. The traditional model offers a more comprehensive valuation. What we can do is employ both these methods. The AVM model can provide you with an estimated rate at the click of your fingers. It is quick, and you would be able to get a general idea of the property’s value in question. 

There are certain things only an AVM would be able to accomplish, while there are things that only a certified appraiser can cover. As AVM works based on known factors, it misses out on intangible things. Say, for example, using an AVM will not inform you about faulty wiring or broken pipes. While on the other hand, an appraiser would be able to give you a comprehensive appraisal. Even factors like hospitals and schools near the locality, a remodeled kitchen, and a beautiful backyard would increase the property’s value.  

AVMs are useful to get a baseline value of your home. The online AVM tool is helpful to get an early estimate. Thus, an AVM is essential for the initial process. If the forecast of an AVM offers close to the lenders’ figure, you can take the next step by getting an appraiser. If the estimate is nowhere close, you won’t have to spend extra cash on getting yourself an appraiser. Getting an appraiser will help you get a licensed valuation, which lenders would accept easily. 

However, there are so many things you need to consider. You can take the help of AVMs to get a primary appraisal. On completion of the first step, you can work together with the lender and get an estimate when you are ready to move ahead. Using the assistance of both AVMs and a licensed appraiser will give you the upper hand in dealing with your property.

[/et_pb_text][/et_pb_column] [/et_pb_row] [/et_pb_section]
Exit mobile version