AVM Madness – How to Lose $50,000
Ok. Comps & AVMs. We get a lot of inquiries wanting more info on AVMs and there’s a lot of misinformation out there. Lots of agents are interested in this topic since they’re the ones having to explain this to home buyers and sellers. First thing, look closely at this example of an AVM and their list of “comparable sales. It’s frightening how much credibility some of these services get. I guess its human nature to like free info, but real estate is like everything else, you get what you pay for.
Okey. This home is one I am very familiar with, and I did an appraisal on this property within the last year. The first thing I want to point out is the sqft total of 4,494 includes the basement. The house actually has about 2,900sqft and a partially finished basement. Using this house as any comparable will turn out a price well below the actual home’s value. Low appraisals may (in part at least) be due to using the square footage info in Public Records. The subject dwelling was built in 1960, brick exterior, and is totally restored – like new. The first “comp” the AVM used was built in 2006, two stories, located on a world famous golf course. Probably not a great comp.
Comp #2 was built in 2001 and was the best comp on their list of ten. #3 was built in 1960 located on a busy street and a $169,000 sale. For this property, that the AVM values at $375,000, most pro’s would not use a house that sold for $170K. Not even close as a comp. #4 was built in 1977 and about half the size of the subject property. For most comps, appraisers typically try to keep the sqft within 20% of the subject. And, they always try to find one comp with slightly smaller sqft and one with slightly larger. This “comp” one-half the size of the subject property is NOT a comparable sale. #5 on their list was built in 1928. It’s located in a V shaped lot surrounded by the golf course where the Ladies U.S. Open was held. This house has a unique floor plan and closets typical of homes built in the twenties. It also has a detached garage with a large upstairs apartment, which is not considered in the equation. Anyway you look at this one, “comp” is not the word a real estate pro would use.
OK, on to #6. Built in 1953, this houses is one where it sold as part of a larger tract, over 5 acres. The land value was almost as much as the house. All the tax record shows is .9 acres. And also, “needs updating” would be putting in kindly to this house. #7 was one of my favorites. Located less than one mile from the subject – in a private, gated, townhome development. Built in 1986 on a slab with beautiful grounds and very high home-owner’s fees. Comparing townhomes in a development like this is apples to oranges. Not even close to a Comp. #8 was built in 1979 and a design only a mother could love. Distance-wise, it’s close. Otherwise, less than half the sqft, condition, and quality. Not even in the same ballpark. #9 and #10 are anti-comps. Both are townhomes located in an older nine-hole golf community. One built in 1977 and one in 1998, and about a third of the size of the subject property.
Using homes that sold for less than half of the value (and size) don’t even resemble “comps.” A 400K and a $200K property are not comps. At the bottom of this list, it says “10 recently sold comparable homes.” Not so. And, when I pulled two other national valuation services, their lists were almost identical. All about “Proximity” and the distance from the subject property; nothing to do with being “comparable.” Welcome to the world of Automated Valuation Models. And they are going to replace appraisers? Frightening!
No real estate agent or appraiser would have used ANY of these so-called comps. There were better sales available in this market, just slightly outside of their magic one-mile radius. Two appraisals were done on this property within the last six months. One came in at $525,000 and one at $540.000. The AVM value was $375,000. If they owner sold at the AVM price, someone just lost a great deal of money.
Please, please, please, tell everyone you work with that wants to know the value of their property to call a real estate professional. Even get a second and 3rd opinion. But, do NOT trust something this important to a national computer program that will never know about the skills and experience required to select and compare residential properties. It’s just not the way the system was designed. Avoid the hype and puffed up commercials. Look at an AVM for fun. When it comes to money, free advice is not the answer. Just say no to AVM’s.
