There are multiple AVM’s available to the general public on the Internet, and we are asked about them often. “AVM” stands for “Automatic Valuation Method” or “Automated Valuation Model” and they are typically algorithm based. The best known AVM’s are the Zestimate and the Case Shiller Index. Let’s closely examine the two of them so you can see why it is important, and actually quite easy, not to be mislead by them.
Zillow’s Zestimate is a very simple formula. It will take all the property in the ¼ mile circumference from the address you are looking up, and it will divide the closing prices for the last 6 months by the square footage of the subject property. That is it. It will therefore compare duplexes to single family detached, houses of any age or construction, horse property to four plexes, homes with pools and lush yards to homes with dirt in the back, houses across busy intersections to each other, trashed houses to heavily upgraded houses, small lot sizes to huge lot sizes, and so forth; all without any adjustments. For this reason, Zillow itself will tell you that it’s AVM can be off by as much as 40% in some markets (although to be clear, it is generally more like 8% off on average, according to Zillow) . If the average home is worth $250,000 in a market (a made up number pulled out of the air to make this point) than Zestimates can be as far off as $100,000 either way. See http://www.zillow.com/zestimate/#acc for more information.
The Case Shiller index, which is the method preferred by the government supported entities Like Fannie Mae (Federal National Mortgage Association, or FNMA), and Freddie Mac (Federal Home Loan Mortgage Corporation, or FHLMC), is based on the past. This index “pairs” a house against itself when it sells, compares the new recent closing price to the last price it closed for, and calculates the percentage of change between the two. That percentage of change is then extrapolated into a market index, and that market index can be used to project the possible current value of a different property. The problem we have with such an index is that it is very broad, and the entire index is based off of only 20 cities across the entire nation (and by the way, Metro Phoenix is one of them). As we have seen earlier, market velocity can vary from city to city, and even from neighborhood to neighborhood, sometimes widely by simply crossing a street. This index may be interesting, but is not enough. For more information on this index, please see http://us.spindices.com/index-family/real-estate/sp-case-shiller
All other indexes available to the general public right now are a derivative of one of these two methods. We prefer to look and think, which the method a professional appraiser will also use.
For a free market valuation of your property, please contact Vince Davis at the Agents with Options ™ at 480 720-4040 or at firstname.lastname@example.org. Call within 30 days and ask about a free home warranty to be placed on your home immediately if you list your home for sale with us!