Here's a little tidbit that isn't typically talked about; AVM's! The real estate industry has been blessed and hurt by these little snippets of code. But what are they? What are they intended for and what value do they bring? AVM is actually an acronym that stands for auto-valuation model. AVM's were originally designed to pull in a myriad of information, calculate an estimated value of a property, and allow the average consumer to have some sort of educated guess as to what they should and should not pay.
Pros of AVM's
AVM's are a good generalized tool to give a buyer a guideline as to what to expect a property value to be. The AVM can either be too high or too low, but it is still useful in understanding exactly what the property MAY be worth. It's a first glance assessment as you head to your first showing. It can answer questions, such as; "Is the seller in the right neighborhood in terms of price?", "Should I even see this house?"
Cons of AVM's
Because they are generalized, AVM's are really only meant to be a quick "guesstimate". Notice, Zillow just took the word estimate and put a "Z" in front of it! This is what an AVM is. Unfortunately, a lot of people think that this is a solid evaluation of a home's worth. Certainly, a computer algorithm can't make a mistake, RIGHT?! Wrong. Home values are based on the market which is based off of variables that will never be able to be measured by an equation. People's opinions, the look and feel of the interior of a home, etc. are all variables that impact the price.
Use AVM's. They are a tool. But don't rely on them too heavily. Take the time to have your real estate agent do a full-blown comparative market analysis and determine the value before you make the offer.