Property buyers rely on a number of different tools to assess the value of a property.
This article will explore Automatic Valuation Reports (correctly known as Automated Valuation Model (AVM) Reports), and how they relate to the actual market value of properties throughout Brisbane.
An automatic valuation report is an algorithm-based computer-generated report, which provides an estimate of the market value of real estate at a specific point in time. The specified value of a property that this report produces uses a combination of mathematical and statistical modeling, along with databases of existing properties and transactions, and then calculates real estate values.
Automatic valuation reports are widely employed in the real estate sector. Some are provided directly to the public on free platforms such as onthehouse.com.au and propertyvalue.com.au. Others are available on subscription only such as CoreLogic. Additionally, mortgage providers, such as banks and other financial institutions, regularly use AVMs for residential portfolio valuations.
Because of their rapid rise in popularity and the availability of Automatic Valuation Reports to consumers, the debate has become apparent about their merits and their accuracy.
But do they accurately reflect the true market value of properties, and can consumers rely on AVMs to come to a determination on what to offer when purchasing residential property in Brisbane?
There are pros and cons associated with Automatic Valuation Reports that are important to outline.
- AVMs are systematic and fast which means an estimate can be provided instantly once an address is entered. In our busy world, this can be a huge advantage for many people looking for quick information.
- AVMs are cheap and therefore they save cost, especially when they need to be generated in large quantities.
- AVMs are computer-generated, thus eliminating human error and removing bias and subjectivity from the equation.
- AVMs rely on high-quality data and often that data is low in volume or not representative.
- AVMs do not and can not factor in the actual condition of a property. Instead, they just assume an “average” state and that all properties are of the same state. Clearly, this is not true when we can buy fully renovated homes as well as unrenovated original homes when selecting real estate.
- AVMs are less accurate in areas where the composition of housing varies substantially. They are more effective when the property stock is very generic in the same location.
- In new estates where there is little or no known data upon which the AVM can rely, the lack of historical records can result in grossly inaccurate results.
- AVMs can only work when the data provided is correct and up-to-date. Therefore AVMs are unreliable in a fast-changing real estate market.
So whilst there are some pros, the cons still outweigh the benefits of relying on AVMs – especially in a fast-moving market. In fact a 2017 conference paper “Automated Valuation Models (AVMs): a brave new world?” concluded that statistically-based valuations may be widely off-the-mark and need to be augmented by professional judgment.” READ HERE
Therefore whilst their use is growing, AVMs have not and should not override human valuation estimates. Instead, a thorough assessment of a property’s value requires not only experience where judgment is called on but also local knowledge of the specific market conditions where individual properties may be dissimilar in a variety of ways.
Our team consistently finds that AVMs underestimate the actual market value of properties in Brisbane – especially in a fast-moving market where growth is strong month-to-month. Instead, a comprehensive analysis of comparable sales, with consideration given to land size, zoning, property impacts, property size, and the property condition is much more accurate.
Despite the fact that AVMs are becoming more mainstream and easier to access, there will always be a need for local knowledge and expertise, as well as a physical inspection and on-site evaluation of the property in question.