There are so many different terms for home valuations…how do you know which one is correct to use and in what situation?
Here we’ll explain 4 home value terms:
- Automated Value Model
- Comparative Market Analysis
- Assessed Value
Automated Value Model
Also known as an AVM, this is where a computer program that comes up with a number for your property typically based upon data received from the town’s assessors database. So they have no idea what’s going on inside your home, if you’ve made improvements, they have no idea what’s happening with the neighborhood, with the property condition, the neighbors conditions, or if there have been any changes to the neighborhood or town. So they are kind of a starting point, you really don’t want to rely upon them because they can have wide ranging valuations and can be incorrect many times. You’re seeing this kind of home valuation on websites, third party websites like Trulia, Zillow, Realtor, Chase bank, and many others.
Comparative Market Analysis
This is what a real estate professional provides. Their license gives them the authority to educate you on what’s happening in the marketplace in your town. This means going over inventory, unit sales, the range of median prices in the town, and then drilling down to what are homes like yours selling for to give you a range of where your home might be worth and what it might sell for. They’ll work on giving you what might be a great starting price to attract offers, and then see where the market takes it. A real estate professional is not allowed to give you a static “here is what your home is worth” value, they have to give you a range of value and a market overview of what’s happening.
This is when you are provided with a static value, “My home is worth X”. A licensed appraiser utilizes one of three approved standards of appraising a property, these are:
- Sales comparison approach – similar to what a CMA might be
- Rental Approach – if the home is a rental what would it be worth based upon rent
- Cost to Rebuild Approach
These 3 methods are the only approved ways of doing an appraisal. If you’re seeing alot of price per square foot analysis on TV shows like HGTV and on websites, they are irrelevant. A bank appraiser is following standards that are set forth by their associations and they are recognized by banking and lending institutions as a valid form of valuating a home. There is a bit of subjectivity in appraisals as well, so this is why you really want to get a local bank appraiser if you need to get a value on a property.
This is a value put on your home by the town, and they typically follow an automated value model, and then massage that number with a factoring model to bring your home into a value amount that when multiplied by the towns tax rate, will come up with the dollar amount of taxes you owe that will go into the pool to pay for police, fire, schools, etc. There is super subjectivity in this, it can be massaged and manipulated. They usually use market data from 2 years ago, so the number is considered a lagging indicator, meaning if the market was high 2 years ago, then assessed values should be below market values now, and when the market shifts down, you should see assessed values higher than market values.
If we can help with any questions you may have about this topic, please give us a call!