Would it be the age of the building, its location, or maybe how many owners it previously had?While all of the above will certainly be important to you (though to varying extents), there’s one universal factor that will either be a deal-breaker or make you want to go all in.You’ve guessed it — the price.We all have a rough overview of what influences a property’s market value, right?
Now, what about how it’s actually calculated?In this day and age, does each property valuation still require the “human factor” — so, an appraiser who inspects the property in real life?In the following post, we’ll take a look at what automation valuation model is, how it’s calculated, and which industries apply AVMs in their daily work.What is an Automated Valuation Model?In the simplest terms, an Automated Valuation Model (also referred to as AVM) is a term used to describe a service that leverages a mathematical model to provide a real estate property value.
It minimizes the need to personally inspect and scrutinize each and every property on the market — the way it was in the (not so distant) olden days.The real estate industry is a huge collection of data.
These are called: hedonic, tax assessor, price index, and combined valuation.For the sake of this article, let’s discuss the latter (combined model) as it’s most comprehensive and incorporates all of the models above and more.Complex valuation — how it’s calculatedWhen a complex valuation is employed to provide a property’s market price, the software inspects:Recent deed transactions (how many times a property has been sold)The most recent price paid for the property (so, for instance, what the current owner paid for acquiring the real estate vs how much the property could have gained or lost given all the factors that arose since the purchase)Prices of similar properties (the hedonic model, i.e.
An AVM can’t take into account what would oftentimes be apparent to a human valuator.For instance, an AVM will likely price a property highly or poorly based on its location and previous ownership, but it won’t in itself know about any potential nuances such as poor quality of materials used for interior design.In short, what looks good on paper (or screen) won’t necessarily be the same to the human eye.Now, understanding aesthetics isn’t the only area where an AVM might fail to deliver.An automatic report might be poor to reflect the price of the property if it can’t perform a comparative analysis — that is, if a property had never been sold before.Equally so, an AVM won’t be able to reflect an accurate price if a property is unique and nothing similar had been found in records.That’s where a professional valuator will still need to pay the property a visit or do his/her own investigation to provide a custom pricing.Now, with all of the above in mind, let’s discuss which industries and professions can benefit from AVMs the most and why.AVMs — an industry breakdownInvestment professionalsOne extremely prominent group are investment companies or investment advisors, who use AVMs at scale.
Primarily, they apply AVM reports to quickly evaluate whether a property available on the market is a bargain or simply a good investment, given other factors like ROI on similar estates.Investment advisors, on the other hand, can use AVM to generate a list of properties their clients might be interested in.
