AVM Tools vs Appraisals: What’s the Difference? | Pennymac (2024)

There are plenty of online tools to help you determine what your home is worth, but not all tools are created equal. Choosing the right Automated Valuation Model (AVM)—and using it in tandem with a true appraisal—is the best way to educate yourself about the value of your home.

When you’re thinking of purchasing a home, refinancing a loan, or applying for a second mortgage, one of the first things you need to know is the value of your current home. Many potential homebuyers turn to online estimating tools like AVMs for a low-cost way to estimate home value.

However, it’s important to know the differences between an AVM estimate and a true appraisal in order to account for important variables and secure your loan. Read on to learn more about differences between AVM tools and appraisals, and see how Pennymac’s Home Value Estimator compares to other AVM tools.

What Is a Real Estate AVM?

Automated Valuation Models use data points and a mathematical model to estimate real estate property value. In order to produce an estimate, the AVM tool uses two types of evaluation: a hedonic model and a repeat sales index. The results of each are weighted, analyzed, and then reported as an overall estimate.

These tools typically provide a “point in time” estimate based on county tax records, mortgage records, recent sales history, analysis of comparable properties, and other data points. Some tools also take into account previous surveyor valuations, historical house price movements, and user inputs like number of bedrooms, significant property improvements, etc.

Different AVMs rely on different data inputs, which can result in two very different estimates for the same home. For example, if one tool accounts for data last sold but another tool accounts for the year the home was built, you could end up with estimates that vary by thousands of dollars. In addition, if certain information is missing from public records—like an ownership deed, home sale report, or mortgage record—it can significantly affect the estimate.

Appraisals vs. AVMs: What’s the Difference?

Potential homebuyers use AVMs to estimate home value because they are quicker, more affordable, and more readily available than a formal appraisal. However, not all lenders accept AVM estimates as part the loan process, and the AVM will not capture everything an appraisal could.

An AVM is a mathematical estimate of your home’s worth based on known factors. Therefore, it is less equipped to deal with the unknown or intangible factors that come up during a physical inspection. An online home estimator also cannot see physical things like wiring that isn’t up to code, broken gutters, or other aspects that negatively affect the value of the property.

Conversely, the AVM can’t see the aspects of your home that increase its value. A desirable school district nearby, a fully landscaped backyard, and a beautifully remodeled kitchen can all increase your home’s worth—but an AVM won’t be able to factor it in.

The appraisal process, on the other hand, will account for all of these factors and more. While an appraisal may take longer and cost more, you get the best picture of your home’s value when it is appraised by a licensed, certified professional.

It is best to think of an AVM as a precursor to an appraisal. Prospective buyers can use an AVM in the early stage of the lending process to see if your estimate is close to the lenders’ figures. If the property comes in way under value, it’s likely the deal won’t work and you may not need to pay for a formal appraisal after all. If your AVM estimate is close to your lender’s estimate, an appraisal is a natural next step to tie up loose ends and get a formal valuation to work with.

Comparing Online Automated Valuation Models

If you’re in the early stages of selling your home and want to get a baseline estimate of your home’s value, an online AVM tool may be a good place to start. Before you start plugging in information about your home, take a look at the different AVM tools on the market to pick the right one for you.

Pennymac - Home Value Estimator

Pennymac’s Home Value Estimator is a free online AVM tool that provides two independent estimates, including the Zillow Zestimate®. The report produced by the Home Value Estimator includes important details about:

  • Estimated home value and Zestimate®
  • Price per square foot
  • Home details (number of bedrooms, number of bathrooms, lot size, year built, etc.)
  • Sales history
  • Value history and estimated value by quarter
  • Comparable sales in the area
  • Locations of comparable home sales

Zillow - Zestimate®

Real estate website Zillow provides a “Zestimate®” that includes current estimated home value and a Zestimate® forecast, which predicts home value one year from now. The Zestimate® is calculated based on public records and user-submitted data. Homeowners can update details about their home (like a new bedroom), which is incorporated into the next Zestimate®.

Trulia - Trulia Estimate

Real estate website Trulia offers a free AVM tool called “Trulia Estimate.” The Trulia Estimate is calculated based on public records and agent-reported transactions, taking into account the physical characteristics of the home, property tax information, and recent comparable sales.

Choosing the Right AVM Tool

With so many AVM tools on the market, it can be hard for potential homebuyers to choose the right one. When you’re getting started with the homebuying process, try to keep each tool in context:

  • Look at the factors and data inputs the tool is using. Ideally, you want to use an AVM tool that pulls information from a wide variety of reputable sources. Data availability may vary by state and county, so if possible, look into the regional accuracy of the tool you have in mind.
  • Ask your lender for a recommendation. Lenders deal with AVMs daily. They know which ones typically deliver the most accurate results and which ones to stay away from.
  • Take these numbers with a grain of salt. Keep in mind that AVMs only provide an estimate of your home’s value. If your numbers come in lower or higher than you expected, there is no harm in meeting with your lender to discuss your options.

An AVM is a valuable source of information, but it’s only one step in the process. Browse AVMs to choose the right one for you, and work with your lender to arrange a formal appraisal when you’re in a position to move forward.

Check out Pennymac’s online home value tool to get a free, instant estimate of your home’s value, or contact a Pennymac Loan Officer for more advice.

AVM Tools vs Appraisals: What’s the Difference? | Pennymac (2024)

FAQs

AVM Tools vs Appraisals: What’s the Difference? | Pennymac? ›

AVMs use algorithms and models to analyze property data, generating valuations automatically. Appraisers conduct physical inspections and consider various factors to determine property value. AVMs provide quick estimates but may not always accurately reflect market value, especially in unique or changing markets.

What is the difference between an AVM and appraisal? ›

Automated Valuation Models (AVMs) provide faster, cheaper valuations to financial institutions and borrowers alike compared to traditional appraisals. But both appraisals and AVMs have their own benefits and drawbacks. While traditional appraisals can be slower and costlier, they may be more accurate in some cases.

How accurate is AVM in real estate? ›

Key Takeaways. Automated valuation models (AVMs) are software-based pricing models used in the real estate market to value properties. AVMs are more efficient and consistent than a human appraiser, but they are also only as accurate as the data behind them, meaning they may be outdated or incorrect.

What is usually included in an AVMs valuation? ›

Automated valuation models (AVMs) are statistically based computer programs that use real estate information such as comparable sales, property characteristics, and price trends to provide a current estimate of market value for a specific property.

What are the advantages of automated valuation models? ›

Automated valuation models (AVMs) offer several advantages in terms of efficiency, cost-effectiveness, and standardized valuations. They provide quick and automated property valuations based on data-driven algorithms.

What are the three main types of appraisals? ›

There are three internationally accepted methods of measuring the value of property: the cost approach, the sales comparison approach and the income approach. Depending on the nature of the property being valued, one or more of the approaches may be used by the assessor.

How long does AVM appraisal take? ›

AVMs can be completed in minutes, and PCRs often take as little as two to three days. Compared to the full appraisal process which historically takes several weeks to complete and costs several hundred dollars, these options are far more appealing to your bottom line, and to the homeowner's timeline.

What is a good AVM confidence score? ›

A five-star confidence score means that you can expect a property to sell at a price within 10 percent of the property's estimated value. Low confidence scores mean that different estimate models yield more widely ranging estimates for a property.

In what scenario might a human appraiser be needed alongside AVMs in the real estate industry? ›

AVMs may encounter difficulties in valuing complex or unique properties, such as luxury homes or properties with extensive amenities. These properties often require detailed appraisals by professionals familiar with their unique features, highlighting a limitation of AVMs in assessing such properties accurately.

How to calculate AVM? ›

AVM reports are calculated based on several data points, including:
  1. Property sales history.
  2. The year the home was built.
  3. Tax assessor's value.
  4. Property features like size and number of bedrooms.
  5. Sales history of similar properties.

What is the best valuation model? ›

Typically, the relative valuation model is a lot easier and quicker to calculate than the absolute valuation model, which is why many investors and analysts begin their analysis with this model.

What are the advantages of automated methods of analysis? ›

Benefits of Automated Data Analysis
  • Save time. Automated data analysis frees you from the burden of deeply (and manually) engaging large datasets and extracting key insights.
  • Reduce human error. ...
  • Improve data quality. ...
  • Focus on higher-level tasks.

What is the difference between appraisal and replacement value? ›

Fair Market Value is what someone would expect to pay for a vehicle or for a vehicle to sell for at a reasonable sale. Replacement Value Appraisals provide the amount to replace the vehicle. Knowing the difference of these two appraisal types and when to use them is important.

Is a CMA or appraisal more accurate? ›

While you can't completely predict what the outcome of an appraisal will be, you have more control over it than what a CMA will conclude. A CMA and an appraisal are different processes, but both help you to get you accurate and up-to-date information about how much your home is worth.

What are the two main distinctions between a CMA and an appraisal? ›

While a CMA is a fairly casual process driven by an agent's experience and instinct, an appraisal is a formal valuation. Rather than being driven by the selling process, an appraisal occurs on the buyer's end, and it's typically driven by the needs of the mortgage lender.

What does allow AVM mean in real estate? ›

An AVM, or automated valuation model, is simply a computerized estimate of a home's value that a lender might use to begin determining its value. AVMs are efficient, effective and essential tools in loan manufacturing. AVMs help expedite processes, lower costs and minimize risk.

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