I marvel at these AVMs, I really do. They have these amazing algorithms that are constantly being improved upon. But I start grimacing is when the general public and even the real estate community start taking these AVMs for more than a grain of salt. In addition to some information that these AVMs tend to omit (see ‘basements, lot size, garage count, appeal and updates'), there is an emotional factor that I don't believe a computer generated model will be able to grasp.
Please take note, these web sites were not created merely for your entertainment, they were created to make money. If you go to the front page of these sites, you will see by all the banner ads, that they are doing just that. And as a free service to Realtors, they can add their listings into the database. What a brilliant strategy they have thought up.... They are literally getting Realtors to enter information into their ever growing databases. It's a win/win situation; Free ads for the Realtors and free information compilation for the AVM.
I'm going to concentrate the three aforementioned AVMs today and use an ‘example house' that I once knew quite well. I have not stepped foot in said house for over 6 years now, and so I have as much knowledge about the condition of this house as any of the AVMs do....
I chose this house because:
- I am familiar with the basics of the house and the area
- I have no ties emotionally or financially to the house
- It is a very average house for the area
Here is the information on this house according to the information these AVMs nabbed from tax records:
- 2 Bedroom / 1 Bath
- 1,015 SF main floor
- 432 SF Finished Attic (included as GLA)
- (540 SF finished basement not included in valuations)
- 5,638 square foot lot (lot size is not counted in the valuations)
Here is some additional or corrected information:
- 3 Bedroom / 1 Bath (the third bedroom is the entirety of the ‘finished attic')
- The 432 square feet in the attic is more like 200 square feet due to low ceilings and sloping walls.
- There is a 500+ square foot partially finished basement that all three AVMs have chosen to ignore (because the same tax records they are gleaning their information from plainly shows the basement information).
- The driveway and garage is shared with the neighbor to the north
- The front yard is within eye and earshot of an arterial street
- The next door neighbor is an apartment complex
- Updates have been done throughout the house including kitchen and bath updates
Gross Living Area:
AVMs glean their information off of tax records... sort of... I have yet to find one that includes basement space unless that basement space is included as ‘finished' and added into the upstairs GLA or Gross Living Area.
For example, the house I currently live in shows that 200 of the 1,000 square feet of basement space is finished and so the assessor's office has added that 200 square feet to the upper GLA, completely skewing my house's square footage and eliminating any solid results on value from the get-go.
Basements have completely different values in different regions throughout the country. In the northwest, we generally value our basements more than much of the rest of the country. For the most part, basements exceed the title of root cellar and most have finished concrete floors. We cannot make assumptions about these spaces. Headroom, floor and wall finish, etc are all very important in distinguishing how houses compare to one another. In fact, the smaller the house, the more worth a basement has (especially if it's finished).
All three of these AVMs put a lot of weight on bedroom count. In the Portland metropolitan area, however, it does not carry as much weight as above ground GLA. In fact, the example house has three bedrooms, but tax records only show it as two.
The average lot size in this house's area is 5,000 square feet and the subject's lot would be considered rather average. However, none of the AVMs make any accommodations for lot size. This can be incredibly essential when lot sizes vary from 5,000 square feet to 20 acres. Even within the city limits, an 8,000 square foot lot can be quite rare and more desirable than a 5,000 square foot lot. And if that 8,000 square foot lot is sub-dividable... well that's a whole other potential value to a buyer....
I have seen duplexes and bare land sales used to determine value for similar houses to this one. As these databases are built up with Realtor information rather than tax information, this occurs less and less.
The example house is located in a nice area, but just south of a very nice area. Although within a mile of one another, the markets are completely different. AVMs do not take this information into account.
None of these three AVMs take garage space into account, but a buyer or appraiser certainly would.
Amenities and Appeal:
The computer cannot tell what style and appeal a house might have in comparison to another. Many home owners believe their house is their castle and are going to believe that they're house is worth the high end of the range (or above).
AVM Results for the example houes:
- Zillow values this house at: $334,000 (Zillow is basing this figure on one, yes just one recently sold home). The zestimate can be manipulated (see image below) by inputting your own information about the house. This can be used for good or evil, depending on how honest the in-putter wants to be...
- Trulia values this house between: $329,600 - $340,567 (Trulia is smart, they do not claim a value or range, only what ‘similar' homes in the area have sold for and are currently listed at).
- Cyberhomes values this house at: $311,383 (with a range noted at $280,245 to $385,090) - It is important to note that this information was last updated June 27, 2008.
Fortunately, all three AVMs give disclaimers to their services. Unfortunately, all are hidden in the fine print and pretty generic.
Zillow: A full page of quantifications has been created on the zillow.com web site. The most important line, "A Zestimate home valuation is Zillow's estimated market value. It is not an appraisal. Use it as a starting point to determine a home's value."
Trulia: Is as generic as its value ranges: "THIS SITE, THE MATERIALS, AND THE SERVICES ARE PROVIDED ON AN "AS IS" BASIS WITHOUT WARRANTIES OF ANY KIND, EITHER EXPRESS OR IMPLIED. YOU EXPRESSLY AGREE THAT USE OF THIS SITE, INCLUDING ALL CONTENT OR DATA DISTRIBUTED BY, DOWNLOADED OR ACCESSED FROM OR THROUGH THIS SITE, IS AT YOUR SOLE RISK. WE DISCLAIM ALL WARRANTIES, EXPRESS OR IMPLIED, INCLUDING, BUT NOT LIMITED TO, IMPLIED WARRANTIES OF MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE, TITLE, AND NON-INFRINGEMENT AS TO THE INFORMATION, MATERIALS, AND CONTENT ON THE SITE. WE DO NOT REPRESENT OR WARRANT THAT MATERIALS IN THIS SITE ARE ACCURATE, COMPLETE, RELIABLE, CURRENT, OR ERROR-FREE. WE ARE NOT RESPONSIBLE FOR TYPOGRAPHICAL ERRORS OR OMISSIONS RELATING TO PRICING, TEXT OR PHOTOGRAPHY."
Cyberhomes: This is hard to find, but clear and concise: "Any home Valuation provided via this Site is NOT an appraisal report of the market value of the subject property prepared by a licensed professional appraiser. The Valuation has been generated by use of proprietary computer software which assembles publicly available property records and certain proprietary data to arrive at an approximate estimate of home valuation. The CyberhomesTM Valuation has not been prepared, evaluated or reviewed by a licensed professional appraiser. User is advised to engage the services of a licensed professional appraiser in order to receive an accurate and comprehensive evaluation of the market value of a home. Please contact your lender or REALTOR® to engage the services of a licensed professional appraiser. "
What would I as an appraiser value this house at? I wouldn't know until I sat down and did the research. Sure, this will take longer than the .002 seconds for these AVMs to compile, but what I will offer my client is accuracy, knowledge and the all-important human touch.
I know it's much later... and a much different market... but I found this and thought I should add it for reference:
... Granted... this is an REO, but the big picture is that this house is located on an arterial street, in average- / fair condition and 1,008 square feet of the aforemented square footage is in an unfinished basement.