For a quintessentially “brick and mortar” industry, real estate has certainly embraced its fair share of digital solutions in the past decade. Primarily, this shift has been consumer-led: real estate buyers and sellers want the same tech-forward convenience and value they see in other transactions, like e-commerce and service apps.

Enter Automated Valuation Models – or AVMs, for short. AVMs exist alongside a suite of newfangled digital tools, platforms and functionalities aimed at elevating the real estate consumer experience.

What are AVMs, and how do they work? What are their advantages (and disadvantages)? And, as this article's title hints, how do automated valuation models foreground real estate transparency? Let’s take a closer look.

What Are Automated Valuation Models?

They go by various names: AVMs, home value estimators, property valuation calculators, etc. But they all refer to (more or less) the same thing. They are algorithms that comb through data to determine the potential value of a home.

How Do AVMs Work, and Who Are They for? 

To explain how they work, let’s use the analogy of a rare coin. Let’s say you have a 1912 Liberty Head nickel in your possession and want to determine its worth. If you used an algorithmically-based tool like an AVM, the tool might use a “hedonic model” to pinpoint the various factors influencing the value of any coin: year, material, initial circulation quantity, etc. It might also trawl through similar transactions to determine a baseline average sale price. Finally, it might look at the strength of the current coin collection market.

All of these factors combine to create a number – a value. Similarly, an AVM collates data on tax assessments, sales histories, neighbourhood, market conditions, comparables, etc., to pinpoint a property’s value.

They are a terrific tool for sellers who want a fast, free estimate of their home’s value, which may influence their decision to sell or pricing range. Consumers can find a free, quality AVM at Nobul, a consumer-centric real estate digital marketplace established by expert Regan McGee.   

The Benefits and Disadvantages of AVMs

The benefits of AVMs are threefold: speed, cost-savings and transparency. As mentioned, if you’re a home seller feeling out the market before taking the plunge, AVMs are a quick and inexpensive resource in your decision-making; bypassing the costs and lengthy process of using a professional appraiser, you can get an authoritative estimate to guide your journey.

AVMs' most significant benefit – at least from a consumer standpoint – is that it democratizes information. It makes home prices, which used to be gatekept by professionals (or approximated by annual assessments), a transparent figure of public record. This transparency benefits everyone. It benefits buyers looking to determine whether they’re getting a good deal on prospective homes; it benefits sellers worried about undervaluing their property; it helps the entire market by enabling access to fair pricing tools that don’t grossly inflate or distort property values.

There is one disadvantage, however – if you can call it a disadvantage. AVMs are only as good as the data from which they pull. Therefore, if an AVM works from imprecise, incomplete or outdated data sets, it’s liable to miss the mark. As such, many experts urge consumers to use it as an illustrative tool rather than your ultimate valuation method. But remember: right now is the worst AVMs will ever be; the technology will only improve and mature over time, as will quality standards around the technology.

Whether you plan on selling your home or you’re interested in where to buy next, consider the AVM. It's a transparent, free, fast tool in the real estate consumer’s arsenal.