Automated Valuation Model (AVM)

Reviewed by Vishnu | Updated on Aug 27, 2020

What Is an Automated Valuation Model (AVM)?

Valuation is defined as the process of estimating the value of a given property. Valuation gives a fair idea of the approximate value of the property to both the seller and the buyer.

Also, this helps homebuyers in evaluating their investments in-line with the price quoted by the sellers. While there are various methods with which one can evaluate a given property, Automated Valuation Models (AVM) are one of the most commonly sought after approaches.

Understanding AVM

AVM is a cost-effective and instant approach, which estimates the value of a real estate property with the help of computer-generated models combined with historical databases indexed against the given property.

This approach includes the comparison of valuations of various similar properties at the time due, which is most commonly used in evaluating residential properties.

AVM can be generated within seconds as it involves the use of a technology-based proprietary algorithm. An AVM report generally includes a hedonic regression model, which allows the lenders to estimate the demand and allows the buyers to evaluate the investments at the same time.

Also, a repeat sales index is compared with the hedonic regression model in order to generate the estimated value of the given property.

Criticism of AVM

An AVM includes all information pertaining to the property in question, the estimated value by the tax assessor, history of sales, and comparison with other similar properties as well.

However, to ensure the effectiveness of AVMs, the data must be quantitatively as well as qualitatively accurate to represent the information. Despite the wide-spread use of AVM in the real estate market, it is often criticised for not considering the existing condition of the property when determining its value.