As an experienced real estate appraiser, I can attest that both lenders, brokers employing Automated Valuation Models (AVMs), and homeowners relying on free online home values to ascertain a property’s worth need to be aware of the crucial aspects these digital tools fail to capture.
The Physical Presence of the Property
A computer model can’t drive past a property to validate its existence, inspect its structural integrity, or ascertain its specific features. Is the property where it’s reported to be? Does it have four solid walls and a sturdy roof? Is it indeed a four-bedroom split-level and not a single-bedroom hut? AVMs and online valuation tools can’t provide these essential insights.
The Impact of Unique Property Features
Consider an automated valuation that estimates your property’s worth at $150,000. Has it accounted for the nearby sewage treatment station? The adjacent railroad tracks with noisy night trains? The school district, or the appeal of its leafy street versus the neighboring one? These property-specific features, either enhancing or diminishing market value, often go unnoticed in automated assessments.
The Age of the Property Assessment
AVMs and free online services frequently lean on public assessment records. However, assessments in many states are required only every three years. Consequently, the valuation you receive might be based on data almost three years old. In some states, an assessed value cannot surpass a certain percentage, even if market activity suggests substantial property appreciation. Utilizing an AVM or free online service, you run the risk of an undervalued result.
The Validity of the Comparables
An automated program might compare your property to a similarly-sized property sold a quarter-mile away three months ago. However, this “comparable” property might be in a less sought-after school district, located on a busy, high-speed street, or prone to flooding. It might even have been sold under distress (like a divorce situation) or not at an arm’s length transaction (to a family member). A computer program doesn’t comprehend the nuanced adjustments that might be necessary for a “comparable” property’s sales price.
The Health of the Market
Automated valuations extract data from recent, local sales. If those sales were closed at the local housing market’s peak, the computer program might interpret this as an upward trend, even when a seasoned appraiser knows the neighborhood is beginning to decline. As a lender, you don’t want to be saddled with an overvalued property due to a computer algorithm’s misunderstanding.
Potential Conflicts of Interest
Free online home valuations are often sourced to local real estate agents who use the service to acquire your listing when you plan to sell. Often, the surest way to secure your business is to promise a high selling price for your property. However, these online services often promise a lot and deliver little, raising false hopes of inflated property values.
The Credentials of the Valuator
Working with a certified appraiser assures you of their qualifications, ethical standards, and professional capability to complete your assignment with skill and sound judgment. Conversely, the qualifications of those generating free online valuations are usually unknown, and if known, are unlikely to match an appraiser’s standards. Relying on automated valuations deprives you of an appraiser’s knowledge, experience, and expertise.