Every honest AVM supplier acknowledges that no AVM is perfectly accurate*—period.
So we need to explore that if perfect accuracy is not attainable what is the purpose of an AVM?
If brokers (and appraisers) evaluating curated sold data using human intelligence, intuition, and interpretation of hyper-local market conditions and demand is the most accurate means to value a residential property, then why use an AVM at all?
At the back end of the spectrum, if AVMs are less accurate than a skilled broker they have limited value as a support tool for brokers or appraisers. Brokers and appraisers may appreciate certain technologies streamlining the valuation process, but they want to make the final call on value.
While admittedly, Fannie Mae and other secondary or even primary financial companies use AVMs to determine if the manually derived valuation they receive appears statistically correct, it’s doubtful they would risk using them as the only valuation tool for the securitization of billions of dollars of loans and investments.
Therefore, as a stand-alone backend tool cannot be an AVMs highest and best use.
At the mid-point of the spectrum, for the same accuracy reasons stated above, AVMs cannot replace brokers and appraisers in the marketplace. Obviously this is not an AVMs highest and best use.
At the front end of the spectrum the marketplace of home sellers and buyers loves and demands automated valuations, with those providing the best solution to marketplace demands capturing the eyes and hearts of internet users. To demonstrate this point let’s consider the market share of Zillow.com against that of Realtor.com.
In a perfect scientific experiment we would control to make all other criteria between these two mega-portals equal, and then compare what difference one offering an AVM and one not makes in market demand, as measured in market share.
Making our two portals equal is not quite possible as Realtor.com has a superior volume of data coming directly from over 800 MLSs; Zillow.com has fewer and but is catching up; advantage: Realtor.com.
Furthermore Realtor.com has additional media channels to generate greater market exposure by feeding real estate data to and pulling readers from The Wall Street Journal, New York Post, Dow Jones, and other venues News Corp owns; advantage: Realtor.com.
Zillow.com does not have these complementary media channels, but they do gain additional brand exposure through use of their AVM at places like Homes.Yahoo! and many other websites; advantage: Zillow.com.
Additionally, Zillow.com throws into the mix additional draws through their “coming soon” and “for sale by owner” categories, which Realtor.com does not; advantage: Zillow.com.
Aside from the aforementioned Realtor.com and Zillow.com differences, what the public perceives is pretty much equal—with the exception of Zillow.com offering an automated valuation.
So understanding that our two competitors are not exactly the same, most of what the two portals offer is considered equal by the sellers and buyers. Both present detailed information on homes for sale, and both have similar search tools based on location, price range, bedroom and bathroom count, etc.
If offering an AVM on your website creates such an advantage of market demand along with the leads associated with this superior exposure, why then are brokers so against AVMs?
The first argument always entails accuracy. After a decade the marketplace is pretty aware the Zestimate is not perfect. If you toss on the sellers’ and buyers’ screens values derived by CoreLogic*, Onboard Informatics*, or any other AVM supplier, you would have the same problem as Zillow does regarding accuracy. But the marketplace loves to play with them anyway as demonstrated between the Realtor.com and Zillow.com market share comparison.
AVMs offer the market a little control—and the chance to learn and explore. Using them are emotionally gratifying and rationally empowering, even with their shortcomings.
As a promotional tool on the internet an imperfect AVM wields a vast advantage over offering no AVM.
The second argument is stated as “only brokers” can value a home. Obviously that’s not true. What is true is that on average brokers more accurately value homes than AVMs do. But you only get the chance to demonstrate this to a seller if your website, infused with AVM information, has first drawn in inquisitive seller leads.
The third argument typically degrades into an emotional cry that “Zillow is stealing our leads—and selling them to somebody else.” Maybe, but the typical broker, brokerage, or franchise based IDX site has at least the same home information as Zillow.com. So the marketplace must crave something other than simply detailed bedroom counts and lot size information; they’re playing with the AVM.
Zillow.com currently has two major advantages over typical IDX based broker sites: 1) an AVM everybody loves to play with, and 2) a $100,000,000 yearly advertising budget. You can only match one of those. And if you choose not to provide an AVM you make Zillow happier by the day.
Based on actual market dynamics, those who offer an AVM versus those who do not will continue to gain internet lead share because they better meet the desires of the marketplace than those who don’t.
An AVM’s highest and best use is as an internet based marketing and promotions tool. It’s sticky web content. It’s a reason for potential home sellers to contact you. It’s a conversation starter. And this is all hard to come by in an otherwise very boring, generic sea of IDX sites. Zillow has known this for a decade and now you do too.
In 2016 it will not be a battle between sites that offer an AVM and those that do not; those without this desire fulfilling tool will fall to the wayside. Instead it will be a battle between the sites which offer the most useful AVM to sellers and buyers, all while being broker friendly.