Real Estate Evaluations vs. Automated Value Models
Real estate evaluations and automated value models (AVM) are two popular methods used to estimate property values.
Real estate evaluations involve real estate professionals conducting a thorough valuation of your property, considering various factors and applying professional judgment. On the other hand, AVMs employ algorithms to generate an estimated property value.
Let’s explore the difference between real estate AVMs and evaluations, including their key characteristics and if they’re compliant with federal guidelines.
Real Estate Evaluations
Real estate evaluations, commonly conducted by professional real estate valuation analysts, involve a comprehensive assessment of your property’s value. Here are some key characteristics of real estate evaluations:
Human Involvement
Real estate evaluations typically involve a physical inspection of the property by a qualified human appraiser or analyst. The analyst considers various factors, such as the property’s condition, location, size, amenities, and comparable sales data, to determine the property valuation.
Subjective Analysis
Analysts use their expertise, knowledge of the local market, and professional judgment to evaluate the property. They consider both objective data (like recent sales prices of similar properties and other publicly recorded data) and subjective factors (like a property’s unique features) to arrive at a professional opinion of value.
Compliance With Standards
Real estate valuation analysts are typically required to follow industry standards, such as the FIRREA, HMDA, and Interagency Guidelines. These standards ensure quality control and an ethical approach to real estate evaluation.
Looking for more information on real estate valuations? Check out What is a Real Estate Evaluation & When Can My Lending Institution Use Them?
Real Estate AVM
Automated value models (AVMs) — like you see on sites like Zillow and RedFin — are computer-generated algorithms that estimate property values based on available data and statistical models. Here are some key characteristics of AVMs:
Data-Driven Approach
AVMs rely on large databases of property information, such as recent sales prices and market trends. While AVMs generate property value estimates quickly, they are known to be inaccurate and will often provide a “confidence score” for the estimated values.
Limited Human Involvement
AVMs do not involve a physical inspection or in-person appraisal. Instead, they rely on data inputs and algorithms to estimate your property value. There is little to no human element to this approach.
It’s important to note that while AVMs can be a useful tool for providing initial estimates, they may not capture all the nuances and unique characteristics of a property that a real estate professional can assess. For example, AVMs might not take recent upgrades or unique design features into account.
Real estate evaluations are generally considered more accurate and reliable than AVM property assessments, especially for complex properties or residential, commercial, or vacant land in markets with limited data availability.
Read Now: 6 Reasons Why Human Real Estate Evaluations Are Superior to AVMs
Are Real Estate Evaluations Compliant?
Real estate evaluations are compliant with a certain set of regulations and guidelines. While it is not necessary for financial institutions to use evaluations, they are a great cost-effective way to close loans faster.
Are AVM Property Values Compliant?
While institutions are allowed to use AVMs to help them in developing a value for a property, an AVM is ultimately a tool and not an opinion of value. To reconcile the most accurate value, a legitimate evaluation should be performed by a trained real estate analyst who is familiar with current best practices to derive home values.
The use of AVMs is permitted in assisting evaluators as a starting point, but they shouldn’t be substituted for professionally derived evaluations.
When Should You Choose Real Estate Evaluations vs. AVMs?
Choosing between an automated valuation model and a real estate evaluation depends on your needs and the specific circumstances of the situation.
Here are 5 factors to consider when deciding which option is more appropriate when determining the value of your home:
1. Purpose & Scope
If you need a general property value estimate for personal reference, initial research, or a quick assessment, an AVM can be a suitable choice.
However, for more critical decisions such as buying or selling a property, obtaining financing or home equity loans, or for legal purposes, a professional real estate evaluation is often necessary.
2. Property Type & Location
AVMs are typically more accurate in areas with a large volume of comparable sales data, such as densely populated urban areas. They may be less accurate for unique or rural properties with limited market activity.
In such cases, a real estate evaluation conducted by a trained real estate analyst would be more reliable.
3. Property Data Availability
AVMs rely on vast databases and algorithms to generate estimates by comparing a property to recent sales and market trends. If comprehensive and accurate data is readily available, the AVM can provide a reasonable estimate.
However, if reliable data is scarce or incomplete, a real estate evaluation can provide a more thorough analysis by incorporating additional information and professional judgment.
4. Complexity of a Property
AVMs typically work best for standard properties with few unique characteristics.
If the property has distinct features, such as extensive renovations, architectural significance, or unusual zoning, a real estate evaluation is more likely to capture these nuances and provide a more accurate value.
5. Legal or Financial Requirements
In certain situations, such as mortgage underwriting, legal disputes, or tax assessment appeals, a more comprehensive analysis, such as a real estate evaluation, may be mandated by regulations or required for documentation purposes.
AVMs may not meet the specific requirements of these scenarios.
Akrivis Provides Quick & Accurate Property Valuations
Need more information and reliability than an automated valuation can provide? We’ve got your back.
Akrivis can help save you time and money with our compliant lending solutions. Our trained human appraisers will get you an accurate real estate evaluation in five business days or less. We work with residential properties, commercial properties, and agricultural/vacant land across the United States.
To get started, fill out our contact form. Upon completion, one of our dedicated real estate professionals will reach out to you with more information about your property and valuation needs.