The US #housingmarket is facing an impossible #AVM dilemma.
HomeOpenly uses a fairly rudimentary AVM formula that accounts for home appreciation over time coupled with data we receive from public records. In this particular area, we use home appreciation value rate of 2.75% annually (3% is a relatively safe number.) We also use Zillow API as a backup figure (something that no other real estate platform offers to their users, as far as I know.)
This particular home was last sold in 2010, 11 years ago, for $165,000.
Based on a normal conditions appreciation rate formula, this home should be worth about $222,000 in 2021.
We round this figure to $220,000 in order to show buyer rebate and listing commission savings estimates. In this case, Estimated Listing Savings to Seller is $4,400 and Estimated Refund Amount to Buyer is $990 based on openly advertised savings offered on HomeOpenly by local Realtors.
The $220,000 estimate on HomeOpenly is primarily used to estimate these savings, and it is fairly conservative, so not to exaggerate the available listing savings to the seller, or the available buyer agent rebates to the potential buyers.
Nonetheless, the seller of a similar property contacts me, asking why do we display $220,000 estimate, and not the $350,000 estimate that is displayed by Zillow (aka Zestimate) for that same property. “You are publishing misinformation,” she says.
Am I really?
First of all, the AVM estimate is never misinformation. The AVM process is highly subjective and all consumers must always rely on the genuine appraisal to make their buying and selling decisions. The AVM figures published anywhere by anyone online is not an appraisal and cannot be used as one, it is an estimate and it is legally displayed as one.
Second, a home is a long-term asset, valued as a long-term investment against the USD.
As an impartial party (that does not personally care one way or another whether this home is valued at $220,000 or $350,000) which figure should I use?
Is it my responsibility to please the seller and show the $130,000 upward value increase, or should I leave $220,000 estimate as-is and warn the potential buyer that the home they are about to purchase, under normal market conditions, may be worth $130,000 less than the market presently commands? Buying this home in the present market can potentially place a mortgage underwater if the purchase loan ends up having a higher principal than the free-market value of the home anytime in the future.
All AVM models are currently facing truly impossible position where each platform must somehow decide on the aggregate long-term true value of US housing stock. Is it worth $31 trillion, or $41 trillion? For how long? Should AVM remain conservative, or account for the recent upward housing prices as permanent? Can any home, normally valued at $220,000, be truly worth $350,000?
#realestate #housingmarket2021 #realestatedata #estimates #affordablehousing #homebuying #homeselling #realtors #homesforsale #homevalues #homevaluation #realestatemedia