7 things an automated or non-appraiser valuation won't tell you--

Lenders and Brokers using AVMs (Automated Valuation Models) and homeowners using the "free online home value search" to determine the value of their property need to be aware of the information those search results are not giving them.

For example:

1. Is the house really there? Pretty simple question, but a computer can't drive by a house to see if it's actually located where it's supposed to be, has four walls and a roof, and really is a four bedroom split-level and not a one bedroom shack.  

2. Are there unique features of the property that might add to, or detract from, its market value? That same computer returns an estimated value of $150,000 for a particular house. Did it take into account the sewage treatment station next door? The railroad tracks down the road with trains that blow their whistles in the middle of the night every night? The school district? The desirability of its tree-lined street vs. the parking ramp just the next street over?

3. How long ago was the property assessed? Many AVMs and free online services rely on public assessment records. Comforting thought?  No, not really.  In many states assessments may only be required every two-three years — the value you are being given may be nearly three years old in that case. Some states mandate that an assessed value not increase beyond a certain percentage, even if sales activity indicates the property has appreciated far more. When you use an AVM or free online service, you risk a lower value than what the true value is.

4. What makes those particular comparables, comparable? A computer might compare your subject property to another property with similar square footage sold three months ago, a quarter of a mile away. What the computer did not know about that "comparable" property is that it is in a different, less desirable school district, fronts a four-lane, 55 MPH street, and is flood-prone. It also doesn't know if the property was sold under duress (such as in a divorce situation), or in a "not at arm's-length" transaction (such as between family members). A computer simply does not know all the adjustments that might need to be made to a "comparable" property's sales price.

5. Is there a decline in the market? AVMs use data from recent, nearby sales. If those sales were completed at the peak of a local housing market, the computer will think the trend is going up. Even if a professional appraiser knows that the overall neighborhood is beginning to experience a downturn. As a lender, don't get stuck with a property that's been overvalued by a computer.

6. Is there is a conflict of interest? Free online home values are often farmed out to real estate agents in your area, who then use the service to get your listing when you decide to sell. The best way to accomplish that is to impress you with their confidence that they can get a higher price for your property. If they tell you your property is "worth" the high end of what they believe they can sell it for, or so the theory goes, you're more likely to sign a listing agreement. With most things, it's best to "under promise and over deliver" — but the opposite is true when you use a free online home value service.

7. What qualifications, designations, experience and education does the preparer of the value have? When you work with an appraiser, you can be confident we're highly qualified, ethical and prepared to complete your assignment professionally and with good judgment. Most of the time, you don't know the qualifications of whoever is behind those free online values, and they couldn't compare to an appraiser's if you did. And if you're relying on an automated valuation, you're cheating yourself out of an appraiser's continuous ongoing education, vast experience and superb expertise.