Valuation and source data question with AVMs and appraisals

[Demonecm]

My question is about AVM. I own a duplex. Across the street and three doors down is another duplex. Literally an easy stones throw away. When I pull up valuations on the various online tools my duplex always comes up significantly below that of other duplex. Everything empirical about the two is the same (neighborhood, number of bedrooms and baths, parking, etc) with the exception that my duplex is more than 20 percent LARGER. I actually purchased two appraisal reports from Clear Capital and here’s what’s interesting, and what I believe to be behind this. The comparables CC uses for the duplex across the street are 100% SFRs. The comparables for my duplex are all multi family. SFRs sell at a significant price premium to MFRs in this area. In addition, many of the comps for my duplex are outside what’s considered a premium location (which my duplex is in), while the comps for the other building all fall within the premium area, again artificially skewing the data. Finally, there are actually two comps that are next door to each other. One is an SFR, The other an MFR. And you guessed it, the SFR is used fir the other duplex, not mine, and the MFR is used fir mine, but not the other. Problem is these AVMs are significantly undervaluing my property for loan purposes, and it’s happening with all AVMs, not just Clear Capital. Any thoughts on what’s going on here? Can this be fixed? I know appraisers use AVMs use as a starting point for their work and believe this will severely hinder my ability to obtain financing.

 

[CGinMN]

My question is about AVM. I own a duplex.

Problem identified.

Across the street and three doors down is another duplex. Literally an easy stones throw away. When I pull up valuations on the various online tools my duplex always comes up significantly below that of other duplex. Everything empirical about the two is the same (neighborhood, number of bedrooms and baths, parking, etc) with the exception that my duplex is more than 20 percent LARGER. I actually purchased two appraisal reports from Clear Capital and here’s what’s interesting, and what I believe to be behind this. The comparables CC uses for the duplex across the street are 100% SFRs. The comparables for my duplex are all multi family. SFRs sell at a significant price premium to MFRs in this area. In addition, many of the comps for my duplex are outside what’s considered a premium location (which my duplex is in), while the comps for the other building all fall within the premium area, again artificially skewing the data. Finally, there are actually two comps that are next door to each other. One is an SFR, The other an MFR. And you guessed it, the SFR is used fir the other duplex, not mine, and the MFR is used fir mine, but not the other. Problem is these AVMs are significantly undervaluing my property for loan purposes, and it’s happening with all AVMs, not just Clear Capital. Any thoughts on what’s going on here? Can this be fixed?

It sounds like the property across the street that you think is a duplex, the AVM thinks is a SFR. A major problem with AVMs is data integrity and highest and best use. They are not good at valuing MFR. When you say "appraisal reports" are you actually talking about AVM reports, or were they prepared/written by a licensed appraiser?

I know appraisers use AVMs use as a starting point for their work and believe this will severely hinder my ability to obtain financing.

No, they don't. I know only one CA appraiser who does this, but he's up in the Bay Area.

 

[alebrewer]

I know appraisers use AVMs use as a starting point for their work and believe this will severely hinder my ability to obtain financing.

I know of none who use AVM's as any kind of measurement tool at all - in fact, most I know have a lot of disdain for AVM's.

 

[Red Flint]

1-800-Call-Bert

 

[Demonecm]

Problem identified.


It sounds like the property across the street that you think is a duplex, the AVM thinks is a SFR. A major problem with AVMs is data integrity and highest and best use. They are not good at valuing MFR. When you say "appraisal reports" are you actually talking about AVM reports, or were they prepared/written by a licensed appraiser?


No, they don't. I know only one CA appraiser who does this, but he's up in the Bay Area.

Good to know. Maybe I was misinformed as to the appraiser using the data from the AVM. What i was told, by a loan broker, was that appraisals that deviate from AVM by greater than 10% would require an additional appraisal to justify. So I assumed the appraiser probably started with the AVM.

When I said appraisal reports I did indeed mean AVM reports. Those reports also describe that other property as a duplex, but I have suspected that there’s some code, that I can’t/don’t see, in the database that identifies it as SFR. Is that possible or likely?

 

[Tiffany Gibbons]

Good to know. Maybe I was misinformed as to the appraiser using the data from the AVM. What i was told, by a loan broker, was that appraisals that deviate from AVM by greater than 10% would require an additional appraisal to justify. So I assumed the appraiser probably started with the AVM.

When I said appraisal reports I did indeed mean AVM reports. Those reports also describe that other property as a duplex, but I have suspected that there’s some code, that I can’t/don’t see, in the database that identifies it as SFR. Is that possible or likely?

My "Zestimate" from Zillow counts a nearby apartment building as a single family home with 24 bedrooms as an example of an "AVM". It's just mass public data compiled with no consideration as to what the AVM is "guesstimating". No certified or licensed appraisers use AVMs unless they work for government, Lenders, or Fannie Mae, Freddie Mac, etc. and their License # is not in danger.

 

[sputnam]

I don't know any appraisers who start with an AVM.

 

[andrew81]

To the original poster. I have no idea how online avms operate. Can't help you.

Myself included, I don't personally know any appraiser that uses Zillow as a target. There is more than one poster of this forum that has openly admitted (several times) to using Zillow or other such sources as a target value.

With that said, even in my limited rural market, I have heard from buyer's, seller's, and even listing agent's that they have reviewed or used online avms as a guidance.

 

[jay trotta]

During the Pandemic Period, working from home was allowed, but if I remember correctly most Lenders/AMC's noted a "review" of an AVM product could Not be solely used and that all data required a "hands on search" for any data used in those reports.
It was allowed by FNMA/FREDDIE MAC and as always someone decided in the aftermath, they could use only the AVM model without a "boots on the ground" support product. There will always be a difference between man & machine. IMO - Field Experience cannot be added to a machine, it lacks human understanding.

 

[CGinMN]

Any thoughts on what’s going on here?

One benefit to an appraisal report is that it summarizes the appraiser’s opinions and conclusions so that the intended user (you) can understand how the value opinion was derived. For an AVM, there’s no obligation to do so, leaving users to wonder “what’s going on here?”