Automated Value Models vs. Real Estate Agents: Which is Better?
April 24, 2023 | Real estate | No Comments
Automated Value Models (AVMs) and Real Estate Agents both have their own advantages and disadvantages, and the choice of which is better depends on the individual circumstances.
AVMs are computer programmes that estimate the worth of a home based on data such as previous home sales, location, and property attributes. They are quick, convenient, and reasonably priced, but their accuracy varies greatly depending on the quality of the data and the algorithm utilised. AVMs are best suited for customers who want a general estimate of how much their home is worth but are not intending to sell right away. AVM is simple to use, and its accuracy is determined by more than 12 model evaluation criteria. It assists both lenders and consumers in reducing human participation, saving time, and making wise real estate decisions based on correct data. Explore Estater’s AVM model for generating instant property valuations here: Estater Meter
Real estate agents, on the other hand, are well-versed in the local market and can provide a more accurate assessment of a home’s value based on criteria such as recent sales, current inventory, and buyer demand. They can also advise sellers on pricing strategy and promotion, as well as help them manage the complicated process of selling a home. Real estate brokers, on the other hand, often charge a commission on the sale price of the home, which can be substantial.
Importance of Determining Property Values in Real Estate
Property valuation is an important part of real estate since it allows buyers and sellers to make informed decisions. Property values are determined by a variety of criteria, including location, size, condition, and amenities, and they can fluctuate over time because of market conditions. Correctly estimating property values can aid sellers in setting a realistic asking price and purchasers in making competitive bids. Furthermore, assessing property values is important in real estate transactions since it affects mortgage loans, property taxes, and insurance premiums. It can also help real estate professionals provide appropriate advice and suggestions to their clients by assisting them in assessing prospective returns on investment. There are many factors that can influence the value of a property in real estate, including:
1. Property Location:
One of the most essential variables influencing the value of a property is its location. Properties in favourable locations, such as those near good schools, amenities, and transit, are often more valuable than those in less desired places.
2. Property Size and Layout:
A property’s size and layout can have a substantial impact on its value. Bigger properties, as well as those with unique and functional layouts, are frequently more valued than smaller or less-functional ones.
3. Property Condition / Age:
The condition of the property, including its age, maintenance history, and any required repairs or renovations, can all have an impact on its value. Properties in good condition that have been well-maintained are often worth more than those in poor condition.
The neighbourhood in which the property is located might also have an impact on its value. Neighbourhoods with low crime rates, good schools, and well-kept public places are usually more valuable than those with high crime rates or badly maintained public spaces.
5. Economic Factors:
Interest rates, job growth, and the overall status of the economy can all have an impact on property values. Property values may rise in a robust economy with low unemployment, whereas they may fall in a bad economy with high unemployment.
6. Comparable Property Sales:
The prices of similar properties in the same area, or comparable sales, can also influence the value of a property. Comparable sales are frequently used by real estate agents and appraisers to establish the worth of a property.
7. Zoning and Land Use Restrictions:
Zoning and land use regulations can have an impact on property values as well. Properties in places with zoning limits or development controls may be less valuable than those in areas with more flexible zoning restrictions.
What is an Automated Value Model?
An Automated Valuation Model (AVM) is a computer-based programme that estimates the worth of a property using statistical models and market data. Lenders, real estate brokers, and appraisers frequently utilise AVMs to determine rapidly and effectively the worth of a property without the need for an on-site inspection. AVMs often provide a value estimate by combining data sources such as recent sales data, access roads, and property attributes such as size, age, and location. To produce a more accurate estimate of the property’s value, the models may also incorporate local market trends and economic data such as interest rates and job growth. AVMs are frequently coupled with traditional appraisal methods to provide a more accurate estimate of a property’s value.
How AVMs Work to Determine Property Values?
AVMs (Automated Valuation Models) evaluate the worth of a property using complex algorithms and statistical models based on multiple data sources. Here’s a quick rundown of how AVMs work:
1. Data Collection:
AVMs gather information about a property from a variety of sources, including public records, multiple listing services (MLS), and other databases. The information gathered often includes the property’s location, size, age, number of rooms, and previous transactions in the neighbourhood.
2. Data Analysis:
Once the data is acquired, the AVM analyses and interprets it using statistical models. Regression analysis, market comparison, and other approaches may be used in the models to uncover patterns and relationships between data points.
3. Value Estimation:
The AVM generates an estimated value for the property based on the data analysis. Depending on the level of detail offered by the AVM, this value is often presented as a range or a precise dollar amount.
4. AVMs frequently include quality control techniques to guarantee that predicted values are as precise as possible. Certain AVMs, for example, may highlight properties with odd attributes or in areas with low sales activity, which could impair the estimate accuracy.
The Role of Data in AVMs:
Data is essential in Automated Valuation Models (AVMs) since it serves as the foundation for the algorithm that generates property value estimations. AVMs generate a detailed profile of the property in question using a large quantity of data from both public and private sources. The information gathered often includes the property’s location, size, age, number of rooms, and previous transactions in the neighbourhood. Following that, the data is examined using statistical models and algorithms to uncover patterns and links between the data points. To evaluate the worth of the property, methods such as regression analysis, market comparison, and other techniques may be utilised. To produce a more accurate assessment of the property’s value, the AVM algorithm may also use local market trends and economic variables such as interest rates and job growth.
The accuracy and quality of data used in AVMs are critical for creating credible property value estimations. To ensure that the data is correct and up to date, AVMs employ several quality control procedures, such as cross-referencing public records with other data sources or identifying properties with unique characteristics.
The Accuracy of AVMs Compared to Traditional Appraisals:
While AVMs can be beneficial for quickly evaluating a property’s value, they are not a replacement for a traditional assessment performed by a certified appraiser. Some of the issues that can alter the accuracy of AVMs as compared to standard appraisals are as follows:
1. Data Accuracy:
The accuracy of AVMs is affected by the quality and accuracy of the data utilised in them. AVMs estimate property values using a huge amount of data, and if the data is erroneous, obsolete, or incomplete, the AVM’s estimate may be inaccurate as well.
2. Property Specific Attributes:
AVMs may not include unique qualities or aspects of a property that could affect its value, such as a newly renovated kitchen or a particularly picturesque outlook. Traditional assessments, on the other hand, take these data into account, and the appraiser may visit the property in person to examine its condition and quality.
3. Location of the Property:
AVMs may be less accurate in locations with limited sales activity, whereas traditional assessments consider the unique characteristics of the local market and provide a more complete analysis.
Who are Real Estate Agents?
Real estate agents are licenced professionals that assist clients in the purchase, sale, or rental of real estate. They operate as middlemen between buyers and sellers, and are in charge of arranging the transaction from start to end. Real estate brokers work in a wide range of environments, including residential, commercial, and industrial properties. Real estate agents are responsible for a variety of tasks, including:
1. Client Representation:
Real estate brokers advocate their clients’ interests throughout the buying, selling, or renting transaction. They serve as advocates for their customers, assisting them in negotiating advantageous conditions.
2. Property Marketing:
Real estate agents oversee marketing properties to potential purchasers or renters. They generate interest using a multitude of methods, including online listings, open houses, and print marketing.
3. Act as a Guide:
Real estate brokers advise customers on a wide range of topics, including property values, financing possibilities, and legal requirements. They guide clients through the complicated process of purchasing, selling, or renting a home.
4. Transaction Facilitation:
Real estate agents are in charge of facilitating transactions between buyers and sellers. They work with other experts including lawyers, appraisers, and inspectors to ensure that all components of the transaction are performed correctly.
How Real Estate Agents Determine Property Values?
Property valuations are determined by a variety of procedures used by real estate brokers. Here are a few of the most prevalent approaches:
1. Comparative Market Analysis (CMA): is the process of determining the worth of a property by studying recent sales of similar properties in the local market. Agents will compare the property to similar ones that have recently sold by considering characteristics such as location, size, age, condition, and amenities.
2. Automatic Valuation Models (AVMs): AVMs are computer programmes that estimate property values using statistical models and algorithms based on data such as recent transactions, property attributes, and local market patterns.
3. Appraisals: Appraisals are detailed reports created by certified appraisers / valuators that estimate the worth of a property based on a thorough investigation and analysis of the property. While real estate brokers do not normally undertake appraisals, the results of an appraisal may be used to assist assess the worth of a property.
4. Professional Experience: Based on their knowledge of the local market and previous experience with similar properties, experienced real estate agents may be able to determine the worth of a home. Nevertheless, this approach is subjective and may not always be correct.
The Role of Market Knowledge and Expertise in Real Estate Agent Appraisals
Experienced agents who specialise in a particular area have a thorough awareness of the local real estate scene, which includes elements such as neighbourhood dynamics, local trends, and market demand. This knowledge may be quite useful in determining the worth of a property.
Real estate agents with market knowledge may discover and assess comparable properties, which are like the one being appraised and have previously sold in the local market. They can then utilise this information to create a Comparative Market Analysis (CMA), which is a report that compares the property being assessed to recently sold comparable properties. Real estate professionals can properly evaluate a property’s worth and give useful insights into the local real estate market by studying recent sales data and market trends.
Real estate agents must have a complete understanding of the appraisal process, including the many methodologies used to establish property values, in addition to market knowledge and experience. They must be able to clearly explain these procedures to their clients and offer them with precise information regarding the estimated worth of their property.
The Accuracy of Real Estate Agent Appraisals Compared to AVMs
Real estate agent assessments and Automated Valuation Models (AVMs) can both be useful for assessing property values, but their accuracy varies depending on several criteria.
Real estate agent assessments are often more accurate than AVMs because they entail a more extensive examination of the property and consider a broader variety of characteristics, such as the property’s condition, location, and any recent repairs or additions. Real estate agents may also give a more detailed study of market trends and local issues that may affect a property’s worth.
Yet, real estate agent evaluations can be affected by personal prejudices and the intentions of the parties involved in the transaction. A seller, for example, may be more inclined to accept an assessment that is greater than the market value, but a buyer may be more willing to accept an estimate that is lower.
AVMs, on the other hand, estimate property values using algorithms and statistical models based on data such as previous transactions, property attributes, and local market patterns. While AVMs can be a valuable tool for quickly and readily evaluating property values, they may not always produce an accurate assessment of a property’s genuine worth.
Advantages of Automated Value Model
The use of Automated Valuation Models (AVMs) in real estate has various advantages:
- Speed: AVMs are meant to estimate property values fast and simply, which can save time and money when compared to traditional methods of property assessment, such as engaging an appraiser.
- Cost – Effective: AVMs are often less expensive than traditional appraisals, which can be beneficial for property owners searching for a rapid assessment of their property’s worth without spending large fees.
- Consistency: AVMs assess property values using objective algorithms and statistical models, which can give a more consistent and trustworthy estimate of a property’s value than subjective evaluations.
- Valuation Based on Large Data: AVMs can access and evaluate massive volumes of data, such as recent sales data, property features, and local market trends. Traditional appraisal methods, which may rely on a smaller sample size, may produce a more thorough and accurate assessment of a property’s value.
- Transparency: AVMs give a transparent and objective assessment of a property’s value, which may be valuable for buyers and sellers negotiating a price.
Factors to Consider When Choosing Between AVMs and Real Estate Agents
There are various considerations to consider when determining whether to use Automated Valuation Models (AVMs) versus a real estate agent for property valuation:
1. Property Type:
The kind of property being appraised can have an influence on the valuation method’s accuracy. AVMs, for example, may be more accurate for ordinary single-family houses, whereas real estate agents may be more appropriate for evaluating unusual or premium properties.
2. Purpose of Valuation:
The aim of the appraisal might also influence the technique of value. Lenders may need a traditional evaluation by a professional appraiser if the valuation is for a mortgage or refinancing. If the assessment is for an informal estimate of the worth of a property, an AVM or a real estate agent may be more suited.
3. Time Constraints:
The period for valuation might also influence method selection. AVMs may offer a fast assessment of a property’s worth, which is beneficial if time is of the essence. A real estate agent, on the other hand, may be a better alternative if a more complete and precise value is necessary, even if it takes longer.The period for valuation might also influence method selection. AVMs may offer a fast assessment of a property’s worth, which is beneficial if time is of the essence. A real estate agent, on the other hand, may be a better alternative if a more complete and precise value is necessary, even if it takes longer.
4. Data Availability:
The availability and quality of data can also influence technique selection. Data such as recent sales, property features, and local market trends are used by AVMs. An AVM might be a viable solution if this data is easily available and dependable. However, if the data is restricted or untrustworthy, a real estate professional with local experience and skills may be better qualified to offer an accurate appraisal.
The cost of the valuation may also be a consideration. AVMs are less expensive than traditional appraisals, however real estate brokers may charge a fee for their services. If money is an issue, an AVM may be a better alternative.
Case Studies or Examples Comparing AVMs and Real Estate Agent Appraisals
Here are two comparisons of Automated Valuation Models (AVMs) and real estate agent appraisals:
1. Example of a High-Rise Building Apartments:
In this example, a unit in a high-rise building in a large city is being appraised for prospective sale. An AVM was utilised to estimate the property’s worth at KD 1.55 million, but a real estate agent offered an evaluation for KD 1.70 million.
Based on recent sales data, property attributes, and local market trends, the AVM was able to rapidly produce a broad estimate of the property’s value. But, based on their local knowledge and skills, the real estate agent was able to produce a more complete and accurate evaluation that took into consideration the exact location and distinctive qualities of the high-rise building, such as facilities and vistas. The real estate agent’s evaluation also factored in any prospective building difficulties, like as maintenance expenses or planned repairs, something the AVM may not have addressed.
2. Example of a Shopping Center:
In this example, a shopping centre located in a suburban area is being valued for potential sale. An AVM was used to estimate the property’s value at KD 5 million, while a real estate agent provided an appraisal that estimated the value at KD 5.5 million.
Based on recent sales data, property attributes, and local market trends, the AVM was able to produce a rough estimate of the retail centre’s worth. The real estate agent, on the other hand, was able to offer a more realistic evaluation based on their local knowledge and skills, which took into consideration the retail centre’s special location and distinctive qualities, such as the anchor tenants and neighbouring competitors. The real estate agent’s evaluation also factored in any prospective concerns with the property, such as forthcoming lease renewals or changes in zoning restrictions, that the AVM may have overlooked. But, if these anchor tenant, locational, and demographic factors are somehow transformed to algorithms, the AVM will generate a more better, transparent, and accurate valuation than a real estate agent.
Zillow is a well-known AVM that offers online house appraisals. The business conducted research in 2017 to compare the accuracy of its AVMs to real estate agent valuations. According to the study, Zillow’s AVMs were 53.9% of the time within 5% of the final sale price, while real estate agents were 53.1% of the time within 5% of the final sale price. This implies that Zillow’s AVMs were just as accurate as real estate professionals in forecasting the value of a home.
4. Chase Bank:
In 2017, Chase Bank did research comparing the accuracy of their AVMs to real estate agent assessments. According to the research, Chase’s AVMs were more accurate than real estate professionals in forecasting the value of a property. Chase’s AVMs were within 10% of each other.
CoreLogic is a provider of automated valuation models (AVMs) utilised by banks, mortgage firms, and real estate professionals. The business conducted research in 2017 to compare the accuracy of its AVMs to real estate agent valuations. The study discovered that CoreLogic’s AVMs were more accurate than real estate agents in forecasting the value of a property. CoreLogic’s AVMs were 73% of the time within 10% of the final sale price, whereas real estate agents were 63% of the time within 10% of the final sale price.
Redfin did research in 2019 that evaluated the accuracy of AVMs and real estate agent evaluations in forecasting house prices. According to the study, real estate agents were more accurate than AVMs, with an average error rate of 1.99% for agents against 6.09% for AVMs. The study did discover, however, that AVMs were more consistent in their estimations, having a narrower margin of error when compared to agents.
The Future of AVMs and Real Estate Agents in Determining Property Values
In assessing property values, the future of Automated Valuation Models (AVMs) and real estate agents is likely to feature a hybrid of both systems, since each has advantages and limits.
AVMs are anticipated to evolve and grow more complex when artificial intelligence and machine learning algorithms are integrated. As AVMs can evaluate huge quantities of data and generate more tailored estimates based on specific property attributes and local market trends, property values may become more accurate and efficient.
Real estate agents, on the other hand, are expected to continue to play a significant role in the property assessment process, particularly for more complicated properties or those in unique or niche markets. Real estate agents will also continue to use technology to improve their services, such as adopting virtual reality to conduct virtual property tours or predictive analytics to better understand their customers’ requirements and preferences.
Finally, the future of property assessment is likely to feature a combination of AVMs and real estate agents, with each technique adding value to the process in its own way. When deciding which technique to utilise for property assessment, property owners and purchasers must carefully analyse their individual needs and circumstances.
What’s Estater and How It Helps in Real Estate Investment?
Estater has created a much smarter and a new generation property valuation tool, to help you figure out how much your house or real estate assets are worth. AVM looks at how far the property is from public transit, the schools in the area, and the number of other homes in the neighbourhood. It also considers factors such as highway access, nearby mosques, open parking, and supermarkets.
It is backed by more than 36,000 lines of code algorithm to offer the accurate value of the property. AVM helps you in the decision-making process. With greater precision value it presents confidence in the accuracy of the result. With the convenient, fast, and competitive alternative to traditional property appraisal, you will minimize the time spent on the valuation process. It amazingly reduces the risk of human error and the cost associated with the traditional appraisal method. Explore Estater’s AVM model for generating instant property valuations here: Estater AVM Meter. Highlights of our AVM are:
- This methodology uses previously recorded property transactions and sets of features related to the land, highway access, visibility, and nearby amenities of every individual property.
- It uses machine learning to assess data and find the best correlation of attributes that makes sense.
- Performs a variety of mathematical and statistical models to find the best value for their product.
More than 12 models are used in each iteration for price validation.
- With each model, AVM assesses the property price and then generates estimations. It also identifies which area of your neighbourhood will most likely have the higher value, as a final step.
Estater have detailed and comprehensive data on different real estate sector in Kuwait that can provide intricate details in these trends.
- Market insights: Inventory build-up and occupancy trends.
- Location analysis: Market gaps and retail catchment analysis.
- Competitor Benchmarking: Estater can help businesses understand their competition and make strategic decisions.
- Financial Modelling: Estater can provide you highly flexible financial model which can be easily modified based on your inputs.
- Leasing Trends: Lease rate and tenant mix analysis.
- Demographic analysis: Combining retail sector data with demographics of the areas, Estater can help businesses understand their target audience.
- Consultancy: We offer consulting services for many aspects of real estate reports, such as financial modelling, benchmarking, demographic analysis, catchment analysis, and so on. Our Estater Meter and Market Intelligence solutions will provide you with customised results depending on your preferences.