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The Rise of the Automated Valuation Model for Property Pricing

By Ben Shepardson | April 11, 2023

Pricing properties prior to sale has traditionally involved using comparative market analysis. CMAs are estimates of a home’s price, based on factors like the location of the property, its age and size, construction, condition, and other elements. A solid CMA can help sellers set a listing price and a buyer make a competitive offer. 

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Normally, comparative market analysis is conducted by a real estate professional, but today, more accessible tools known as automated valuation models (AVMs) are putting those capabilities in the hands of buyers and sellers directly. These tools are popular, but how useful are they? Are they accurate enough to rely upon? And will an AVM ever replace a traditional CMA?

Understanding Automated Valuation Models

Your typical AVM is based on artificial intelligence in order to work. More exactly, AVMs use machine learning to examine a number of data points to make determinations as to what the value of a specific property might be. The information an automated valuation model uses is often pulled from things like current market trends, the age of the property, sales data from comparable properties, and details of the property itself. This means that an AVM looks at many of the same factors that a traditional comparative market analysis does, just without input from humans.

Many large-scale real estate companies have leveraged AVMs to great effect. Zillow’s Zestimate tool is an excellent example of this, as it’s the most high-profile case of an automated valuation model being used in such a widespread manner. Yet for as much convenience as an AVM like Zestimate provides, they’re far from perfect. An automated valuation model is only as accurate as the information provided to it, and there have been a number of instances where Zestimate, for example, has been found to have been way off base in the past. If even a massive company like Zillow has problems securing enough data for its AVM to function accurately, this shows how these tools have limited usefulness.

Unlocking Smarter Home Valuations

With automated valuation models representing both excellent opportunities as well as some noteworthy flaws, it’s clear that relying on them exclusively for property pricing is never going to be a good idea. At the same time, AVMs are still useful in that they can be a place to start from when it comes to getting an idea of what sort of range you could expect while looking into buying or selling a certain property. In this case, the best course of action would be to not rely on just a single AVM to provide you with information. There are other automated valuation models out there that can be used to generate valuation estimates that you can then compare your original results to. 

Additionally, having a skilled and experienced real estate professional conduct a comparative market analysis on your property further provides a more complete look at what the property is worth and what might be considered a competitive sale price. As always, it’s important to keep in mind that property valuations are subject to dozens, if not hundreds, of different factors; market conditions can change almost overnight, and this can have a profound impact on the value of any property. The more research you do on a property and its possible value, the better equipped you’ll be when it comes to buying or selling that property.

Ben Shepardson is a Realty Biz News Contributing Writer and has a long track record of success in online marketing and web development. While pursuing a bachelor’s degree in Computer Information Systems, he worked doing enterprise-level SEO and started an online business offering web development services to small business customers.
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