What Is An Automated Valuation Model (AVM)?

Have you ever wanted to know the value of a property? Instead of going through the expense of hiring an appraiser, you can take advantage of an automated valuation model.

Let’s take a closer look at what an automated valuation model is.

Automated Valuation Model (AVM): Defined And Explained

An automated valuation model (AVM) is a technique that uses property data, along with information on local real estate and your neighborhood to algorithmically determine the value of your home. AVM uses mathematical or statistical modeling and a combination of existing databases to estimate property value.

Some AVM providers, such as Freddie Mac and Equifax^®, charge for the service, but you can use free AVMs on sites like Rocket Homes℠¹. If you’ve ever looked up your home value online, you’ve used an AVM. Rocket Mortgage^® offers AVM-based valuations on eligible Home Equity Loans.²

Because an automated valuation model is based on its existing data, its estimates are only as accurate as the property details in its database. An AVM will likely produce inaccurate property valuations if the data is outdated, incomplete or incorrect.

How Do Automated Valuation Models Work?

AVMs use mathematical formulas, property details and property database information to generate reports on a property’s estimated value. AVM reports are calculated based on several data points, including:

• Property sales history
• The year the home was built
• Tax assessor’s value
• Property features like size and number of bedrooms
• Sales history of similar properties

With that data, an AVM uses a mathematical model to estimate a property’s value.

Because an AVM doesn’t consider the condition of the property when estimating its market value, the estimate may not be entirely accurate. There is a physical inspection of the exterior just to verify the property is in good shape.

AVM Pros And Cons

Using an AVM to estimate a property’s value offers advantages and disadvantages.

Pros

• There’s less likelihood of the transaction failing due to a low appraised value because you have a solid valuation upfront.
• AVMs offer a faster and easier way to estimate a property’s value. An AVM can save you time and effort when you need an initial estimate fast, like if you’re trying to figure out whether a house is overpriced.
• Because a traditional appraisal requires a professional to go to your property and evaluate your home for several hours, they can be quite expensive. AVMs are a more cost-effective option.

Cons

• AVMs are only as good as their data. They need an enormous amount of high-quality data to operate successfully.
• AVMs don’t factor in a property's appearance. Any variation in the condition of a property can result in a discrepancy between the estimate and actual property value. An exterior inspection is still done to make sure the property is in good physical condition.
• Although AVMs factor in the sales price of comparable properties, when valuing unique properties, their accuracy can lessen.

Automated Valuation Model Vs. Appraisal: What’s The Difference?

Home appraisals are traditionally conducted by licensed appraisers who physically inspect a property to collect details on a home’s condition and determine its fair market value. When a human appraiser is involved, a property valuation can be influenced by human error and bias. Still, human appraisers are widely considered far more accurate than AVMs, and a conventional lender will require a full appraisal for a home purchase.

Although the property details AVMs use in their calculations can vary, the table below provides a general overview of the typical ones AVMs use to estimate a home’s market value compared to the factors in a professional appraisal.

Different automated valuation models work differently. Some AVMs allow more user inputs than others, and AVM estimates will vary.

Automated valuation models offer many advantages. However, mortgage transactions still require home appraisals. A home appraisal can be an important checkpoint in the mortgage closing process. It helps determine a far more accurate valuation based on the condition of a property.

What Is An AVM’s Purpose In Real Estate?

AVMs are used throughout the real estate industry.

Real estate agents, brokers and mortgage lenders all use AVMs as a starting point to evaluate properties. The technology is commonly used to generate property value estimates on commercial platforms and major consumer websites, including iBuyers.

For example, an iBuyer uses an AVM to estimate a property’s value. Once the iBuyer generates an estimate, a homeowner can place their home for sale on the website. They won’t need to hire a real estate agent or meet potential home buyers.

It’s also commonly used by Rocket Mortgage and other lenders to come up with a valuation for home equity loans.

Where Can I Access An Automated Valuation Model?

You can access automated valuation models on popular real estate websites. But if you want to dive deeper into AVMs, you’ll need access to a leading AVM provider, such as Freddie Mac or Equifax®.

The most efficient way to access estimated property valuations from an automated valuation model is to request it from a real estate professional, a mortgage lender or a financial institution. With their help, you should secure the initial estimate you need.

The Bottom Line: Take Advantage Of Automated Valuation Models

Automated valuation models can paint a reasonably accurate picture of a property’s value – though the results are only as good as the quality of their datasets.

Rocket Mortgage offers an AVM valuation on eligible Home Equity Loans. There are also many free resources to explore other ways to determine home value.

¹ Rocket Homes^® is a registered trademark licensed to Rocket Homes Real Estate LLC. The Rocket Homes℠ Logo is a service mark licensed to Rocket Homes Real Estate LLC. Rocket Homes Real Estate LLC fully supports the principles of the Fair Housing Act. For Rocket Homes Real Estate LLC license numbers, visit  RocketHomes.com/license-numbers. California DRE #01804478. Hawaii License # RB-23371. TREC: Information about brokerage services, Consumer protection notice.

²Automated valuation model (AVM) is software that uses existing property details to generate a property’s estimated value. AVM appraisals are valid only for Home Equity Loan products. Not eligible for loan amounts greater than $400,000. When eligible for an AVM, the valuation will automatically be applied. Traditional appraisals available by request. Not eligible for loans already in process. AVMs are not available in all states. Additional restrictions/exclusions may apply. This is not a commitment to lend.