If you’re like most homeowners (or aspiring ones), you’ve encountered lots of online listings and automated valuation models (or AVMs) — from the Redfin Estimate to the Zestimate. Who doesn’t love looking up their home and getting that dopamine hit of a higher number than your purchase price (hopefully)? But are they accurate or is there a better way to assess a property’s value on today’s market?
What do you think this property actually sold for?
AVMs, which are often displayed on properties that aren’t currently on the market and even ones that are, are based on the website/source’s individual software that mathematically models values based on various data inputs. Those can be public sources, like tax records and recent sales, but also may include custom algorithms based on macro trends or even activity on that listing on the website (i.e., a new listing that gets more views and favorites than average). In reality, determining a property’s value is both science AND art. AVMs clearly fall more in the science bucket and can be a starting point for a conversation with an expert real estate professional, where you can get the most accurate picture of a hone’s value — which is important when looking to sell or buy (ensuring you are paying market value or, if not, are aware of the market dynamics that may require a higher purchase price).
As a listing agent, I always like to see what popular websites are showing and comparing with an individualized comparative market analysis (CMA). Sometimes they are spot on, but often they aren’t. Having run countless analyses for clients, some of my recurring observations and notes for homeowner and buyers are:
Data inputs can be inaccurate. For example, if an AVM is pulling from public tax records, they often are not updated to capture the current number of bedrooms, bathrooms or even square footage.
Some of the most important data will be missing. Unless you’ve provided the updated info, these models don’t know about the renovations and system improvements you have made. That new roof and HVAC have real value. When we meet, I’ll not only see the condition of your house but also get information on age of systems and more.
The source may have additional motivations. A website displaying a valuation also may be tied to a broker soliciting your business/listing. If you see a bigger number, would you be more inclined to reach out? Many are. (Of note, the same note should be made as you meet with potential listing agents who want to “win the listing.” Personally, I would be doing a disservice to both of us if I provided an inflated estimate…you would be disappointed when you didn’t get an offer at that price, and I would lose your trust. For this reason, we will always keep. it. real.)
Market value and list price aren’t always the same. You’ve heard me talk a lot about the 3Ps, which are key to selling your home for the best price possible and outperforming the market. Pricing correctly involves understanding current market dynamics, your specific property, the competition. and the seller’s goals. For example, pricing slightly below market value and a mere $1,000 below the closest and best comp (when combined with the right preparation and promotion), is a solid strategy to get one or more offers at or above list price (as has been the case with my most successful clients, including the three latest sales in past six weeks). The same is true when you are structuring your offer, with things like competition, contingencies and motiviation meaning your offer price and strategy may be under or over market value.
As you can tell, I love analyzing the market and harnessing data. Curiosity also often has me checking what one or more of these AVMs says about properties I have the deepest knowledge of — my listings. In the image above, you’ll find a snapshot of the fluctuating valuation of one property over a period of less than a month. Before listing, the AVM drastically undervalued the property but, as soon as we listed, the AVM adjusted in range with the list price (which was purposefully below market value…see #4 above). Even after the final sales price was reported, the AVM dropped its latest valuation while it was on the market by almost $100K (which was almost $200K less than the sales price in a multiple offer situation)! Meanwhile, another AVM had the value a full $70K above the other (and still far below the proven market value).
This is just one example but not an isolated incident. AVMs have their role but make sure you are reaching out to a market expert to give you the most accurate info about your house. Whether you’re ready to list or just curious, I’m always game to run the numbers…just reach out!
Amber Harris is the owner of At Home DC, an interior decorator and a licensed real estate agent with Keller Williams Capital Properties working with clients in DC, Maryland and Virginia.