Not All Automated Valuation Models (AVMs) Are the Same
At the heart of every home sale or mortgage deal is the need for an accurate estimate of the property’s value.
And the real estate and mortgage industries have increasingly relied on automated valuation models or AVMs to estimate property values.
The best AVMs will estimate a home’s value with a high degree of accuracy, performing the calculations instantly and removing personal bias and human error.
But not all AVMs are the same.
An automated valuation model is only as good as the data and methods it uses. What makes AVM modeling tricky is capturing subtle differences between properties located in the same general area.
Take, for example, a subdivision with similar homes built around the same time. The square footage, the number of bedrooms and bathrooms and lot size may be the biggest factors in determining the differences in value for homes in that neighborhood.
In other cases, however, the home’s value may be more influenced by location. Its value might change significantly if it were a block away in the next zip code where the school district and the density of homes is different. A model that captures this geographic nuance produces the most accurate estimate of the value.
How ATTOM’s Automated Valuation Model Works
ATTOM has created AVMs with this challenge in mind. Estimates are rooted in precise property and neighborhood boundaries where the AVM can input hyperlocal data to make accurate calculations and statistical analysis.
ATTOM’s AVMs are powered by its national warehouse of property data, which provides granular property data on millions of properties in every state. The data is updated daily.
This coverage is robust and covers 99% of the population. (ATTOM notably doesn’t provide estimates for mobile homes or homes located on farmland, as these properties are generally not a good fit for AVM estimates.)
To obtain accurate results, ATTOM’s AVM uses a four-step approach.
- Step one is to find comparable sales within a defined boundary area. That boundary will be no larger than a neighborhood or an area that encompasses the territory of a specific school district, census block or tract.
- Step two is estimating the value of the property using multiple valuation models. In the majority of the estimates, an algorithm chooses the modeling approach that is most accurate for the individual property’s area. ATTOM’s models provide a low and high estimate, and median range.
- Step three is assigning a confidence score. ATTOM compares its AVM estimates to actual sales prices over the previous three years. About 70% of valuations are within 10% of the sale price and 85% within 20%.
- Step four is routinely performing an accuracy test to ensure that the best modeling methodologies are applied to properties within defined boundaries. Certain methods will yield better results than others in specific locations. The value produced by the most accurate model for that specific property becomes the estimated AVM value.
ATTOM also has a Rental AVM that can provide estimates on the monthly rental value for roughly 80 million single-family homes, townhomes and condos.
Why Automated Valuation Models are Important
Automated valuation models are part of a broader technological revolution in real estate. AVMs lower transaction costs and make it easier to complete real estate deals, whether that be in a home sale, refinancing or home equity lines of credit (HELOCs).
AVMs are useful for several purposes and professions. Mortgage bankers and real estate brokers use computer estimates all the time in home sales and refinancing activity. Real estate investors can estimate the value of individual properties or an entire portfolio. Insurance agencies can use them to help develop a risk profile.
But technology is also bringing big changes in real estate. All aspects of the real estate market are becoming more transparent.
Consumers have more tools to do research on their own and more choices in how to buy and sell homes. Traditional real estate professions need to demonstrate their value to clients.
AVMs are another technological tool that industry professionals can use to sharpen their game, separate themselves from competitors and help clients as their trusted advisors.
With ATTOM’s easy-to-use platform, the broker or agent can easily generate market reports for clients, do analysis of the local market or use accurate data to enhance their marketing materials.
ATTOM’s AVMs were designed to produce the most reliable and accurate value estimates in the market. They can help build confidence with clients, close deals more cost effectively and give your business a leg up.
Written by: Jennifer Von Pohlmann