Story by Kenon Chen for Scotsman Guide
No one likes to have their expectations missed. Whether it’s a product that did not work as advertised, or a rebate with fine print that makes it unusable, it’s beyond frustrating when expectations don’t meet reality. This is especially true for automated valuation models (AVMs).
AVMs are software-based pricing models that often use public records to estimate the value of a home or other real estate. Commonly known AVMs used by consumers are Zillow’s Zestimate and Redfin’s Estimate, but there are many more of these sophisticated AVMs on the market.
“The difference in predicted home values that consumers see and the accurate values that often take them by surprise could be due to a disconnect between marketing and underwriting goals.”
Today, it’s an accepted norm to show homebuyers or sellers an automated home value that is accurate enough to get their attention. But these values often fail in the level of accuracy needed to be usable for a consumer’s financial transaction. This results in a rude awakening for a seller who expects to list their home at the value they’ve grown accustomed to — or a homeowner who is dreaming about the project they can finance with their current level of equity, only to be approved for a lower loan amount.