Sam Shueh
Realty One Group
Campbell, CA
Automated valuation model (AVM) is a computerized model used to estimate value of a home. Most are based on past average sold values of homes within similar size to give lenders and home owners some idea of its worth. There are gross estimates often off from reality due to different home sizes and age variation and lack of interior condition information on the comps. Market can move up or down which is another unknown.
Tax assessor offices use its version of AVM to send out tax bills. The home owners challenge its validity if overpriced and shut up if they are lower. A friend from Palo Alto, Ca had his old home gutted and rebuilt a new bigger house. His property value is now $1.8 million dollars more than previous year. He challenged the assessor that his tax bill shows just $7,000 improvement while land value shot through Jupiter. Models are based on the assumptions and constraints made. If the assumptions are not accurate the results are distorted. Most model does not take into account of local data like inside features, schools, neighborhood block locations, supply vs demand. The computer estimates can be way off.
Business people accept a valuation model with refinements in the algorithm. Some is nothing more than compile more recent sold data within a finite radius and lump similar home sizes and come up with an average value. It works fine if all homes and neighborhoods are similar. The companies made it a flag ship guesstimate product and ignorant people rely the value as gospel. I will not sell my home for less because the guesstimate says it is worth more. The downside is when people notice estimate erosion due to a lower sale or a glitch they are extremely intolerant of the value. They get upset demand correction of a guesstimate. File lawsuit to challenge the company if you are a lawyer having nothing to do.
A friend who took out a home equity loan to update their kitchen. $180,000 later, they had the latest kitchen on the block with a $820 monthly obligation for 10 years. Wife insisted that the home is worth $180,000 more because of the new kitchen. Three appraisers showed up disputed adjustment needed to hang on to their home during a loan modification process. Their loan mod was denied. The easiest way to resolve an unresolved stress is a file a divorce. Had they stop adding luxurious amenity like a fancy kitchen and trust professional opinion their home and family could have been saved.
I am using their home quoting some estimated values:
Subject: A 3,029 sf gla, 5 brm, 3.5 bath 2 story detached home with Spanish style tiled roof, 35 years old.
AVM $1.11-1.304 M (Corelogic)
Zillow $1.268M
Trulia "No longer accessible-contact us for estimate -Do you want to sell?"
Redfin $1.178M
BofA "Can not find your address"
Citibank Can not determine value, site is down
Homes $1.207M
Realtors $0.985M
I am surprised banks can not locate this addresses. They are used by lenders to determine the approximate home value as first cut of a loan process.
The CEO of a real estate technology company was selling his home last year and his flagship estimated it higher and his new purchase was way lower than than what he actually paid for. Not a bit embrassed since he did well financially with his AVM. He vowed to refine it more better than his claim.
Z has a $1,000,000.00 award out there for over two years on a better algorithm. It will be a sophisticated machine learning algorithm probably consists of interior features, height of the home. How many fire pits, green features, north south side facing, views. I figure if I participate they will say you made it too easy using human realtors to do it. They are looking for sophisticated mathematical formulas to replace what has not work well. Whatever they claim +/-8.5%, +/-5% or +/-1% accuracy I am skeptical.
During reviewing what other sites say about home values for a specific home, I am disappointed that Realtors.com is way off from the guesstimete. In fact, it is off by more than $283,000 for a tract home(1.268M-.985M). The variance is 22.4%. My professional opinion is the home needs lots of update besides kitchen. Dry rot decks, bath, flooring, termites, and leaky roof. Most of the interior is original feature. AVM does not know that. It took 180 days in Silicon Valley to move that home before.
Realtor.com who came way too low. It is owned by NA@ which has its own political agenda after failing to stop third party sites listed above syndicating real estate listing information. They forgot what they were supposed to do. Provide realistic information to their clients and members.
The appraisal is the only official method to validate a value. The appraiser actually measures the home size, count the rooms, making adjustment on the improvement. In my humble opinion, it is hard to replace appraisers by any machine learning algorithm. If you hire three appraisers most likely they will all come up within +/-1% accuracy. In my illustration they are off by 22.4%!
A seasoned realtor can do it just as accurate, you gave the size, age and location the realtor can spit out a value faster and more accurately than the AVM. It is the years experience, practice that AVM does not have. One needs to consult a knowledgeable realtor more often than depend on these DIY AVM data and make fatal errors.
SOURCE:
Synopsis on Mortgage Interest Rate vs Affordability (Silicon Valley affordability)
Santa Clara and South San Francisco Bay Area Home Stats Q2 2016
How is my Silicon Valley home worth? (Silicon Valley Home Values)
Sam Shueh Real Estate Blogs
Website - Sam Shueh Realtor SamShuehRealtor at Gmail.com
(Four O Eight) 425-1601
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