AVMs and the Weather Forecast

Automated valuation models or AVMs have long challenged real estate agents and brokers since the consumer release of Zillow's Zestimate™. To some degree, consumers fight the same challenge. The reality is, sometimes AVMs are right on, sometimes they are close, and sometimes they are really wrong.

As I was watching last nights' weather report, I had a moment of clarity. The best way to understand AVMs is to compare them to the weather report. The weather report is never accurate! Yet, for some reason, we watch the weather report every day because it gives us a fuzzy truth about what the weather conditions are most likely going to be.

AVMs are just that, fuzzy truths.

Brokers are thinking about AVMs and if or how they might deploy them on their consumer website. At issue is the notion that if AVMs are not accurate, are we taking a risk by putting them on our listings? It is a difficult question to be answered. You can break the question down into two questions to dissect the issue. First, is the AVM an accurate valuation of the subject property? The answer is a fuzzy yes, or sometimes. The second question requires you to alter your perspective. Is the AVM accurate?

What is an accurate AVM? I would tell you that AVMs are always accurate. They are the exact sum of a calculation that yields results the exact same way every time as long as the components of that calculation remain the same. In many ways, the AVM is not very different than an agent's suggested listed price.