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What is an automated valuation model?
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What is an automated valuation model?

Understanding automated valuation models (AVMs) and appraisals

An automated valuation model, or AVM, is a financial algorithm used in real estate to value residential and commercial properties. It consists of software that uses statistical modeling using large data sets, combining data from various data sources to determine an estimate of the property's value. Automated valuation models are available in commercial products and consumer websites such as Zillow.

Key Overview

  • AVMs are software-based home appraisal models that combine various data sets to determine an estimated property value

  • They are used by lenders, financial institutions, and individuals to determine the value of commercial and residential properties

  • AVMs have been found to save money and time due to increased efficiency and have been found to be quite reliable in comparison to traditional home appraisals

What is an automated valuation model?

An automated appraisal is an automated valuation model (AVM) is a computer program that uses an algorithm to determine the estimated value of a home. AVMs are a helpful tool for quickly gaining a ballpark figure of the property’s worth without having to complete a full appraisal. Examples of popular AVMs include Zillow’s Zestimate or Each of these companies offers its own versions which can be used to search for property values in various locations.

Automated Valuation Models (AVMs) are calculations that use advanced technology to generate a property's estimated market value. The report contains both hedonic models, which use statistical regression analysis to compare various factors and repeat sales index, which analyzes the changes in a property’s value or how comparable properties have been trading recently. It also includes the tax assessor's value and information gathered from homes of similar characteristics, including sales history. AVMs can be used for mortgage and home equity loan applications as well as refinancing and loss mitigation activities.

AVMs are used by many real estate agents and brokers, mortgage lenders, financial institutions, and other financial ser providers. Originally used mainly for residential real estate valuation, it has now extended its reach to other types of property like commercial real estate holdings in institutional investment portfolios. The reports generate in seconds and provide accurate representations of the market values for properties allowing stakeholders to make swift decisions.

How do AVMs compare with traditional appraisals?

The growing demand for instant online estimates of property value has seen the emergence of Automated Valuation Models (AVMs). These models, which require little to no human input, can provide a quick and easy estimate of what a home might be worth. For starters, they are typically free and very simple to use: just enter your address and the system will generate an estimated value. Furthermore, because the valuation is based on collected data - and limited to publicly available information - they don’t involve any potential human bias. In this regard, AVMs allow anyone to get an idea of a home’s value from anywhere in the world without fear of discrimination.

In contrast to AVMs are traditional appraisals - another popular way of determining what a home might be worth or if it is appraised properly. Generally conducted by licensed professionals who visit the property and make their assessment in person, these appraisals take into account factors outside of public records data like paint colors, flooring types, and even architecture style. While these appraisals are more comprehensive than AVMs due to the in-person inspection, they are also more expensive than AVMs.

Automated valuation models are used in sophisticated commercial platforms such as CoreLogic and Freddie Mac, as well as on consumer websites such as Zillow.

Pros and cons of AVMs


AVMs are changing how real estate is valued and making it easier, faster, and cheaper to rate properties on a massive scale. AVMs remove the need for manual labor when appraising property values and automated calculations can be made in mere seconds. They also reduce the risk of mistakes and miscalculations due to human error.

Time-consuming activities such as driving out to view a property or similar comps are no longer necessary, which drastically cuts down costs while allowing decisions to be made more quickly.

With AVMs, financial consultants have access to valuable data with just a few clicks of the mouse. Once set up and with minimal cost, you can gain insights such as square footage worth in current terms, average per-square-foot value across an area over different timescales or trends by bedroom count, etc. Additionally, AVMs enable portfolio managers to easily sort through multiple properties without relying on human resources alone.


One major disadvantage of an Automated Valuation Model (AVM) is its dependence on high-quality data and enough quantity to be representative for it to work properly. This reliance on large amounts of data leaves AVMs vulnerable if there is not enough information available, or if the data quality does not meet its standard.

Property conditions can vary greatly even from similar units of real estate, and the AVM won’t be able to discern or take into account any variable factors which could drastically affect estimated value. Therefore, AVMs rely solely on comparable data and transaction history such as sales prices and listings from other units in the local area – but what happens when these comps are non-existent or sparse? Without being able to track details that may influence the property’s condition or value, an AVM may not return with an accurate estimate.

It is important to consider that AVMs are great at returning values when comparing one unit with a large set of relative data; however, without a sufficient amount of quality data, they will not provide an accurate reflection of the actual value.

The takeaway:

An AVM is a computer software algorithm that gives an accurate valuation of property value using big data sets. AVMs have been found to be quite reliable in comparison to traditional appraisals and when used in place of an appraisal can save time and money. We see an increasing number of mortgage and home equity lenders, such as Figure, successfully turning towards this technology to streamline the lending process for customers.

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