Definition and Examples of Automated Valuation Model
How an Automated Valuation Model Works
Advantages and Disadvantages of Automated Valuation Model
What Automated Valuation Models Mean for Property Buyers or Owners
Definition and Examples of Automated Valuation Model
An automated valuation model is a mathematical tool used to estimate property value based on an algorithm. These models use distinctive calculations, but typically consider factors such as the size of the home, assessed tax value, property sale history, and recent comparable sales.
How an Automated Valuation Model Works
Automated valuation models use complex software and algorithms to calculate property value. While they cannot assess the actual condition of the property like a human appraiser, automated valuation models are still useful tools for buyers, sellers, mortgage lenders, and real estate professionals. For example, someone looking at several properties can use automated valuation models as a quick, easy, and free/low-cost comparison tool.
Advantages and Disadvantages of Automated Valuation Model
Advantages:
– Objective estimation; no human biases
– Useful marketing tool for real estate agents
– Quick overview of property value
Disadvantages:
– Only as good as its data
– May not consider property condition
What Automated Valuation Models Mean for Property Buyers or Owners
Anyone who owns a home can check various automated valuation models to get an idea of their property’s value at any time they wish, for example, when they are interested in selling or refinancing their loan. And if you are looking to buy a home, these tools can help you get an idea of market prices in your area of interest. If you are working with a real estate company or mortgage lender, the agent may use automated valuation models somewhat to assist you in determining or negotiating the price.
Ultimately, automated valuation models may be used by homeowners, buyers, and sellers for research purposes. From a business perspective, mortgage lenders and real estate companies often rely on commercial automated valuation models. Regardless of the use of automated valuation models, there often remains a need for an appraisal by a licensed property appraiser, depending on the type of property transaction.
Key Takeaway:
Automated valuation models are widely used by consumers and industry professionals to help determine property value. They utilize public property data, sales history, neighborhood statistics, and other factors to arrive at an estimate of a specific home’s value at a given point in time. Although automated valuation models are popular tools, they should be viewed as estimates since they cannot account for the actual condition of the property as a human property appraiser can.
Source: https://www.thebalancemoney.com/what-is-an-automated-valuation-model-5196809
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