"Home appraisals, which were blamed for being too generous during the housing boom, are now being criticized by some homeowners for being too stingy, and preventing them from refinancing or borrowing against their houses." reports The Wall Street Journal.

photo credit: Kim Novak, RE/MAX Masters

A computerized real-estate appraisal is a good place to start when determining if a home has enough value to qualify for a loan. But the AVM, or Automated Valuation Model, does not always hit the mark. "An AVM is a good tool if used properly.  But the AVM is only a "starting point," to determine whether the borrower gets a loan, and in almost every case a full-appraisal with a real person is also required," said Mark R. Seccombe,Chief Appraiser at Universal Lending in an article on Inside Real Estate News.

AVMs are good for middle priced homes but not as good for low-end or high-end homes. Using them as the only method, might result in under-valuation of the property leaving homeowners unable to take advantage of near record low rates. "Without analyzing the numbers, I'd guess that 20 percent of them come in low," Seccombe said.

You get what you pay for. AVM's are a fraction of the cost of a full appraisal, so many banks don't want to pay $400 when a computer can analyze the data and spit out the home value, quickly and efficiently, for only $20. In a high loan to value market, this method might suffice but that's not a typical situation in today's market. Lenders also tend to use AVM's for homes priced below $250,000.  Seccombe also states that, "if the lender has already used an AVM, the appraiser better make sure that he knows how the computer generated its value, if the bank is going to require the appraiser to sign off on the AVM appraisal."

A new, web-based valuation company called CompPull.com charges $125 for a home evaluation made by licensed appraisers who are familiar with the local market area. They provide a concise report and if more is needed, they charge $275 more a full appraisal.

An AVM can't distinguish between the right and wrong side of the tracks or a home with a mountain view or one next to open space. The drop in home sales also makes it difficult because that means fewer comparables.  In these cases, an "in person" appraisal would do a better job.

Zillow's "Zestimate" has come under attack lately as greatly undervaluing homes.  They base their numbers on comparing actual sale prices.  Katie Curnett of Zillow noted that, "in the Denver metro area  Zestimates have a median error of 8.5 percent and 55 percent are within 10 percent of the sales price."  Zillow states that they are a starting point in determining the home value and that they suggest getting an appraisal from a professional.

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Posted in Headlines, Denver Colorado Real Estate, Real Estate Investing, Real Estate Market Conditions, Real Estate Industry, Technology And YOU, Home Selling Services

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