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AVMs – You Can't Live With Them, You Can’t Live Without Them.

Written by Posted On Wednesday, 03 July 2019 16:49
Statistical Market Analysis Statistical Market Analysis

Pricing a home for resale can sometimes be a tricky process. Price it too high and the house sits on the market too long. Even worse price it too low and the house sells for less than market value costing the seller thousands.

That is why performing a Comparative Market Analysis (CMA) can often require more in-depth analysis than simply gathering up the last few sales in a particular area and averaging them out to find a median price. It is one of the reasons that I push back so often when a seller tries to use the value published by websites using one of the Automated Valuation Models (AVM) that have become so popular. Automated Valuation Models are bulldozing the real estate industry.

Often agents, appraisers, and AVMs attempt to compare homes in a geographic area, usually in an area that is too large, or do not take into account other factors that increase the desirability of a home.

I can cite many cases where the value of a home was compromised by simply ignoring important facts about a home that will impact the sale.

Such is the case when pricing homes in areas where there is a mix of upscale custom, undeveloped land or tract homes.

One such area in North Scottsdale contains a Planned Unit Development that is strictly upscale. It is home to some of the most expensive real estate in the valley. But just down the road is another Planned Development of mid-priced tract homes. In addition, the area also contains the remnants of a former rural community of horse properties with small meager homes on large parcels. Attempting to compare these very different properties simply because they are located within a general proximity of each other is pure folly. This is one reason why I work so hard to ensure the data I use is correct. Unless the computer programmer knows the intricacies of the area, their model will be inaccurate and values will be skewed.

Another example is in inner city localities where you may have a mix of historic and non-historic neighborhoods bordering each other. The homes in the non-historic sections may not look significantly different on the outside, they may even be comparable in size and condition but may be valued much less than the historic home down the street. Listing agents need to analyze the difference, educate buyers and appraisers to the value and promote the significance or uniqueness of the home.

I recently had a conversation with a friend and fellow agent that had a house listed for nearly 6 months with no offers. It was obvious to him the property was overpriced but he could not convince the seller to lower the price because the CMAs and AVMs for this area supported their asking price. They, of course, blamed the agent for not doing enough to sell their home. After a while, he decided to do a deeper analysis. He took all the comparable sales for the last two years in the section of the development where the house was located. Upon deeper analysis, he discovered something he had missed in his earlier CMAs. Even though the houses in this particular section of the community were built at the same time, there were two different builders. The models were comparable in size and style, but one builder used all high-end appointments. Upgraded flooring, cabinetry, plumbing, and electrical fixtures, windows, doors, etc. The other used common “builder grade” material. When the homes sold new there was a more than $60k spread between builders. When he analyzed the resales he found there to be a greater than 10% (over $50K) difference between the homes built by Builder A vs Builder B. The client’s home even though well maintained was built by the low priced builder. He was able to finally convince the seller to lower the price. Showings went up, and soon he had a solid offer.

It is often hard to convince sellers of the value of local knowledge and expertise. With so many new business models popping up it is becoming very clear that the chances of a buyer that goes directly to the online brokerage could end up paying too much for a home that is incorrectly valued by an AVM. It also could lead to a seller listing for too little because the AVM doesn’t account for the subtleties of the neighborhood.

As the real estate business continues to evolve the technology will improve. Acceptance for the newer business models will create an environment where the margin of error will be accepted as the norm. I do not know what an acceptable margin of error should be, but accuracy should never be traded for convenience.

Until then, I will continue to count my local market expertise as the difference between success and failure.

 

 

Joe Domino is a Realtor® serving the Phoenix & Scottsdale metro area. You can find more great information by visiting his website at www.Scottsdale-AZHomes.com.

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Joseph Domino

I help my clients realize their real estate goals. Whether you are looking for your next dream home, investing for the future or selling your current property, let Arizona's Real Estate Expert work for you.

My "full service" business model allows me to offer Complete Buyers Representation, Flexible Listing Agreements, and Special Incentives for New Home Buyer

Need help with financing? Looking for the best inspectors, appraisers, escrow agents? I work with the best local service providers to make sure your transaction goes so smooth. I want you to be happy. Because your happiness is what motivates me. Work with an agent that puts you first.

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