The Sorcerer’s Apprentice

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Property valuation tools are ubiquitous these days, yes, but few consumers understand that an AVM (Automated Valuation Model) estimate is just one piece of a larger mix to use in pricing your home for a sale.  Most consumer-grade AVMs, it seems, take a fairly standard approach to producing an estimated home value:  gather property characteristics compiled by appraisers and create some standardized algorithm that selects comparables and performs some type of calculation based on averages to arrive at the estimated value of the subject home.  Logical, you may say. Well, not really.

The Standard Approach to AVM

This ‘one size fits all’ formula may work fine in stable and homogeneous markets, with high sales volumes and good hit rates on property characteristics, but that scenario is rarely the case on a national level.  Furthermore, there is much more to valuation than looking only at recent sales data and assessments.

While helpful – and sometimes exciting, but more often than not disappointing – most AVMs are blunt instruments, for sure.  Although it may sound scientific to an average layman, the process I described above is not a precise science.  At best it is akin to wetting your index finger and sticking it up in the air to determine wind speed and/or direction.  The reason these calculations are not a precise science – and should not be – is because the real value of a property is never just a numbers game.  And a value is just a point in time estimate.

What is most notable about these calculations is what they DO NOT include:  property condition and wear, fine fixtures and materials, space layout and room size, appeal of the neighborhood and surrounding lifestyle, school, socioeconomic, employment and tax information, trending information, neighbors and noise/atmosphere, landscaping and views from the property, etc.   After all, is it not all these elements and human factors that comprise the TRUE value of a home?

The Onboard Approach to AVM

Luckily, at Onboard, we take a different approach – and we make our best effort to address the typical AVM shortcomings set out above.  First and foremost we recognize that regions of the country are different in terms of how various housing, community, tax, school and other factors impact home value.  Therefore, we have segmented the country into over 15,000 “valuation areas.”  Each area has its own valuation basis and valuation algorithm.

In addition to segmentation, we also acknowledge that availability of underlying data varies not only from segment to segment, but also from property to property.  This being the case, we actually run four different algorithms on each property.  These algorithms utilize and weigh the underlying data differently to account for content availability and density.  Two of these models rely heavily on sales data - the other two rely more on some of the qualitative factors mentioned above (along with trending data).

As if that was not enough, we have a model selection engine that determines (based on confidence scores) which of the four algorithms is the best valuation.  Obviously, this is a very complex system - and this is where my technical acumen comes to a screeching halt.  Having said that, however, this abridged explanation – I hope – gets my point across.

That point being: although never a perfect science, our AVM offering is more comprehensive and more factual than most.

Additionally, you’ll be pleased to learn that we are currently working on initiatives to further enhance the product – including considering additional impact of lifestyle and human factors such as proximity to public transit, ‘walkability,’ vacancy trends and availability/quality of broadband access, among others.

In Conclusion

At the end of the day, an AVM estimate is just a piece of the valuation puzzle – not to mention a fun plug-and-play for checking the value of your friends’ and neighbors’ homes – but, it should not replace a professional CMA and common sense.  AVMs will never be crystal balls and, really, the only true market value of your home is what your buyer will pay for it.  Yet, in the world of consumer-grade AVMs , we have top performance.  What’s more, Onboard’s arsenal of complimentary community and lifestyle data can further help in that laborious – yet important – process.

Image Credit: Eric Danley on Flickr.com