Automated Valuation Models (AVMs) vs. Professional Property Valuations

When you need a real estate property estimate, there’s more than one way to get it. Some people choose quick, automated tools while others go for a professional, third-party valuation.

The difference comes down to how the value is determined. AVMs rely on algorithms and data, while real estate professionals take a detailed, hands-on approach. Here’s what sets them apart, how accurate they are, and when each option makes the most sense.

What are automated valuation models?

Automated valuation models (also called AVMs) are computer-based algorithms that provide a quick estimate for residential and commercial property values based on data like comparable sales, property characteristics, and market trends. Many websites offer AVM-based estimates, sometimes called free home value estimators.

Characteristics of automated valuation models include:

• A Data-Driven Approach
  AVMs rely on large databases of property information, such as recent sales prices and market trends.
• 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. And, they’re not completed by humans.

How accurate are AVM estimates?

Automated valuation models (AVMs) offer quick property value estimates, but accuracy can vary widely. Some platforms provide a “confidence score” or “error rate” to indicate how reliable a given estimate may be.

So, while AVMs are useful for getting a general starting point, they don’t always capture the full picture. Unique property features, recent upgrades, and local market nuances can all impact value in ways algorithms may miss.

Are automated valuation models (AVMs) compliant with real estate regulations?

Automated valuation models (AVMs) have become a core component of modern real estate valuation. Lenders, investors, and technology platforms increasingly rely on AVMs to provide fast property value estimates. However, a common question remains: do AVMs comply with real estate regulations?

The answer is nuanced. AVMs are regulatory compliant tools, but they are not compliant substitutes for professional appraisals.

AVMs are typically compliant when they are used for supporting or informational valuation purposes, including:

• Portfolio monitoring and risk management
• Preliminary loan screening
• Home equity tracking
• Market trend analysis
• Consumer-facing value estimates

In these situations, the AVM functions as a decision-support tool, not a formal valuation opinion.

What is a professional property valuation?

A professional valuation provides an estimate of the monetary value of a property. It can be used for things like buying, selling, and financing property, or for tax purposes. Valuations like these are based on market analysis, interior and exterior inspections, legal and financial analysis, and more.

What’s the difference between an AVM estimate and a professional one?

While AVMs are created solely using automated technology, a professional valuation is performed by a certified valuation expert who uses their human experience plus the best available tools and data. Characteristics of professional property valuations include:

• 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 FIRREA, HMDA, and Interagency Guidelines. These standards ensure quality control and an ethical approach to real estate evaluation. Plus, compliance adds another level of trustworthiness to help you feel confident about your valuation.

How to Choose Between an AVM and a Professional Valuation

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, a free online 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. If you’re making a home purchase with a mortgage, keep in mind that most lenders require a professional property appraisal before approving a home loan.
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, luxury, or rural properties with limited market activity. AVMs are also known to be inaccurate for off-market homes as we mentioned above. Read more about the exclusion of off-market sales from AVMs here.
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 or historical 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, you may need more than an AVM. A more comprehensive analysis, such as a professional real estate evaluation, may be mandated by regulations or required for documentation purposes.

Trust Akrivis for Quick and Accurate Professional Property Valuations

Need more reliability than an AVM can provide? We’ve got you covered.

Our professional real estate valuations are built on real data, not guesswork, so you get a well-supported, compliant report you can trust. From primary residences and income properties to commercial sites and agricultural/vacant land, we evaluate a wide range of property types nationwide. We’re fast, too! Our experienced appraisers deliver accurate real estate valuations in five business days or less.

To get started, fill out our contact form, and a team member will reach out via phone, email, or text to guide you through the process.