As an appraiser, I’m not a big fan of automated valuation models (AVMs) in general. But, there is one property type where they really drop the ball. When pricing homes with basements or lower levels, the (AVMs) price-per-square-foot formulas are just inadequate. Errors are almost guaranteed. And, if you track these homes you will quickly see a pattern of missed values leaving consumers at the mercy of “big data.” Lower levels, upper levels, homes with bonus rooms, and even homes that look uncomplicated from the exterior can be totally different once you go inside and can determine what is actually “finished” living area and what should be included in that all-powerful price-per-square-foot formula. Consumers are being fed a steady diet of big data and appraisal modernization. What that really means is that a computer system will use a price-per-square-foot formula using the square footage details from public records, who never enter a house and don’t need precise square footage information for their valuation process.
Anyone that works with tax records, MLS, CMAs, AVMs, or appraisals can tell you about the errors in the square footage totals listed by the local assessor. It’s not the assessor’s job to get it right. The problem comes from all those agents, appraisal management companies, and big banks who push the myth of the Official Record for square footage. There is simply no such thing. And, without having a nationally mandated measurement standard there can never be an “official record.” It’s a guestimate that depends on the location, who trained them to measure, and what method they use. A hodge-podge is an understatement.
The price-per-square-foot formula only uses two numbers… the sales price and the square footage. If one of those two numbers is wrong, then so is every number they calculate. That means inaccurate home values and consumers getting cheated on listing prices and loan amounts.
And, don’t forget the entire real estate industry; agents, appraisers, builders, assessors, insurance adjustors, etc; they have no nationally approved measurement standard. For an item that is people’s largest single lifetime investment and the industry doesn’t see fit to mandate one measurement standard… why? Depending on where you live and who measures your house, it could be several different sizes and who’s to say which one is right? It’s s sad state of business in this day and time where “modernization” seems to be a keyword throughout the industry. Perhaps it’s time to modernize the real estate industry with a nationally mandated measurement standard, where a home can be measured by four people and all come up with a very similar number.
Remember, “big data” is only as good as the data they use. And, far too often, that data is bad going in and even worse coming out. Why trust your largest, lifetime investment to a computer program? Your local tax records are likely just as accurate, but they don’t want you to know that because they hope to take over the appraisal industry. It’s a game of smoke and mirrors with everyone wanting to profit from the “new and improved” appraisal process. I would be all for it – if the process was actually new and improved; don’t fall into the big data trap. Hire an appraiser…
