Andresr / Adobestock
A quick internet search will reveal dozens of automated valuation modeling (AVM) sites that promise to tell you how much your home is worth. These AVMs use statistical modeling techniques that “value” your home by comparing it with the price of similar-sized homes that have recently sold in your area. Using proprietary software, AVMs crunch publicly available numbers from the multiple listings service and combine this with regional pricing trends to set a sale price for your home. Enter an address and up pops a value. So why does anyone need a real estate agent?
Because AVMs Get It Wrong
Most AVMs admit that valuations may be off by as much as 5%, but the actual price discrepancies could be as high as 20%. So anyone relying on AVM could be seriously under- or overpricing their home. Old data accounts for some of the error. Because AVMs rely on public sales data, there can be a two- or three-month lag between a sale closing and the data hitting the AVM. This time delay distorts the price. What’s more, AVMs do not take into account the condition of your property or the condition of the comparable properties that make up its data stock. The fact is, no two homes are alike. Statistical modeling does not account for your home’s inlaid marble floors or state-of-the-art kitchen. Software cannot see these things, so it assumes that every home is in average condition. This does not reflect reality, so the valuation comes out wrong.
The Alternative: A Comparative Market Analysis
Real estate agents are trained to prepare a comparative market analysis, or CMA, for every home listed for sale. This involves a physical inspection of the subject property and local knowledge, which combine to give a valuation range. Note the word “range”: CMAs do not, as some people expect, ascribe a single sales price to a property. Rather, they specify the range of prices that the property could achieve on sale, depending on how quickly the seller wants to achieve that sale and other factors.
Preparing a CMA is an art, not a science. There’s no one-size-fits-all. Quality CMAs require thorough knowledge of the dynamics of property sales in a specific neighborhood. The agent makes judgments based on their understanding of the local market and the dozens of peculiarities that affect price, such as lot size; lot orientation; tax assessed value; and features of the lot, including its terrain, access and privacy, improvements and additions, condition, quality, and age. Every home is unique and must be valued accordingly.