Recently I was in the process of refinancing my home. With rates being as low as they are, I figured I'd better seize the opportunity. As part of process, the home needed to be appraised.
My lender asked me what I though my house might be worth. Not really knowing, where do you think I looked? Yep, I logged into Zillow and looked at their AVM to see their estimate of my home’s value.
AVM stands for Automatic Valuation Model. It’s basically a system that pulls together different sets of data to generate an estimated value. There are many AVMs out there that will estimate the value of your home.
With AVMs growing in popularity as a way to estimate your home’s value, how can you find out how accurate they are? Zillow actually provides data about their accuracy in several cities. For example, in Seattle (where I live) the variance is 10.6%; in Portland, the variance is 14.0%; in Phoenix the variance is 12.8% and in Las Vegas the variance is 31.8%.
Another method to get a good idea of what your home is worth is a Comparative Market Analysis or CMA. A CMA is an estimate of the home's value compared with other similar homes in the same or similar areas and is often provided by a real estate professional. This method differs from an appraisal in that property currently for sale may be taken into consideration (because these other properties are actually competition for your home).
Because I was refinancing and not a buying or selling, I felt pretty safe with the 10.6% variance and so did my lender.
I like to think an AVM is like an automatic co-pilot. My good friend who flies for Alaska told me that the 737's can pretty much land themselves. When I asked him what if the unexpected happens he said, “Well, that is why I'm in that cockpit, with all my hours of experience in the cockpit I can take over and bring the plane down safely." Automatic copilots are great when all conditions are normal, but when things happen unexpectedly, the pilot has the experience and ability to keep it all together.
AVM's are great to get an idea of the ball park figure for your home, but when you are really ready to buy or sell I recommend talking to a professional who lives in the community that you are thinking about. In fact Zillow feels the same way (watch this video).