Online Home Value Tools vs Appraisals: What’s the Difference?
01/04/2018 Kristin Demshki
There are plenty of online tools to help you determine what your home is worth, but not all tools are created equal. Choosing the right Automated Valuation Model (AVM)—and using it in tandem with a true appraisal—is the best way to educate yourself about the value of your home.
When you’re thinking of purchasing a home, refinancing a loan, or applying for a second mortgage, one of the first things you need to know is the value of your current home. Many potential homebuyers turn to online estimating tools like AVMs for a low-cost way to estimate home value.
However, it’s important to know the differences between an AVM estimate and a true appraisal in order to account for important variables and secure your loan. Read on to learn more about differences between AVM tools and appraisals, and see how PennyMac’s Home Value Estimator compares to other AVM tools.
What Is a Real Estate AVM?
Automated Valuation Models use data points and a mathematical model to estimate real estate property value. In order to produce an estimate, the AVM tool uses two types of evaluation: a hedonic model and a repeat sales index. The results of each are weighted, analyzed, and then reported as an overall estimate.
These tools typically provide a “point in time” estimate based on county tax records, mortgage records, recent sales history, analysis of comparable properties, and other data points. Some tools also take into account previous surveyor valuations, historical house price movements, and user inputs like number of bedrooms, significant property improvements, etc.
Different AVMs rely on different data inputs, which can result in two very different estimates for the same home. For example, if one tool accounts for data last sold but another tool accounts for the year the home was built, you could end up with estimates that vary by thousands of dollars. In addition, if certain information is missing from public records—like an ownership deed, home sale report, or mortgage record—it can significantly affect the estimate.
Appraisals vs. AVMs: What’s the Difference?
Potential homebuyers use AVMs to estimate home value because they are quicker, more affordable, and more readily available than a formal appraisal. However, not all lenders accept AVM estimates as part the loan process, and the AVM will not capture everything an appraisal could.
An AVM is a mathematical estimate of your home’s worth based on known factors. Therefore, it is less equipped to deal with the unknown or intangible factors that come up during a physical inspection. An online home estimator also cannot see physical things like wiring that isn’t up to code, broken gutters, or other aspects that negatively affect the value of the property.
Conversely, the AVM can’t see the aspects of your home that increase its value. A desirable school district nearby, a fully landscaped backyard, and a beautifully remodeled kitchen can all increase your home’s worth—but an AVM won’t be able to factor it in.
The appraisal process, on the other hand, will account for all of these factors and more. While an appraisal may take longer and cost more, you get the best picture of your home’s value when it is appraised by a licensed, certified professional.
It is best to think of an AVM as a precursor to an appraisal. Prospective buyers can use an AVM in the early stage of the lending process to see if your estimate is close to the lenders’ figures. If the property comes in way under value, it’s likely the deal won’t work and you may not need to pay for a formal appraisal after all. If your AVM estimate is close to your lender’s estimate, an appraisal is a natural next step to tie up loose ends and get a formal valuation to work with.
Comparing Online Automated Valuation Models
If you’re in the early stages of selling your home and want to get a baseline estimate of your home’s value, an online AVM tool may be a good place to start. Before you start plugging in information about your home, take a look at the different AVM tools on the market to pick the right one for you.
PennyMac - Home Value Estimator
PennyMac’s Home Value Estimator is a free online AVM tool that provides two independent estimates, including the Zillow Zestimate®. The report produced by the Home Value Estimator includes important details about:
- Estimated home value and Zestimate®
- Price per square foot
- Home details (number of bedrooms, number of bathrooms, lot size, year built, etc.)
- Sales history
- Value history and estimated value by quarter
- Comparable sales in the area
- Locations of comparable home sales
Zillow - Zestimate®
Real estate website Zillow provides a “Zestimate®” that includes current estimated home value and a Zestimate® forecast, which predicts home value one year from now. The Zestimate® is calculated based on public records and user-submitted data. Homeowners can update details about their home (like a new bedroom), which is incorporated into the next Zestimate®.
Trulia - Trulia Estimate
Real estate website Trulia offers a free AVM tool called “Trulia Estimate.” The Trulia Estimate is calculated based on public records and agent-reported transactions, taking into account the physical characteristics of the home, property tax information, and recent comparable sales.
Choosing the Right AVM Tool
With so many AVM tools on the market, it can be hard for potential homebuyers to choose the right one. When you’re getting started with the homebuying process, try to keep each tool in context:
- Look at the factors and data inputs the tool is using. Ideally, you want to use an AVM tool that pulls information from a wide variety of reputable sources. Data availability may vary by state and county, so if possible, look into the regional accuracy of the tool you have in mind.
- Ask your lender for a recommendation. Lenders deal with AVMs daily. They know which ones typically deliver the most accurate results and which ones to stay away from.
- Take these numbers with a grain of salt. Keep in mind that AVMs only provide an estimate of your home’s value. If your numbers come in lower or higher than you expected, there is no harm in meeting with your lender to discuss your options.
An AVM is a valuable source of information, but it’s only one step in the process. Browse AVMs to choose the right one for you, and work with your lender to arrange a formal appraisal when you’re in a position to move forward.Check out PennyMac’s online home value tool to get a free, instant estimate of your home’s value, or contact a PennyMac Loan Officer for more advice.
Why Use PennyMac?
- Better Rate Promise*
- Close On-Time Promise*
- 1.8 million+ happy customers
- Superior customer service
- Innovative loan solutions
Tap Into Your Equity With a Cash-out Refinance
Get a detailed analysis of how much you can borrow.