What 26+ Years of Appraising Homes Has Taught Me About the Properties That Fool Online Valuation Models
By a Certified Residential Appraiser With More Than 26 Years of Experience
Online home-value estimates have become part of everyday real estate.
Enter an address, wait a few seconds, and an estimated property value appears on the screen.
For a homeowner who is simply curious about the market, that can be useful information. Automated valuation models can process enormous amounts of property and sales data very quickly.
But after more than 26 years of appraising residential real estate, I’ve learned something important:
The properties that are easiest for an algorithm to analyze aren't always the properties that are easiest to appraise—and some homes simply don't fit neatly into an automated model.
A house may look relatively straightforward in public records while having characteristics that significantly affect how buyers actually view it.
Renovations, condition, acreage, unusual lots, finished basements, additions, views, location influences, quality, and unique amenities can all create distinctions that aren't obvious from a database.
That's where the difference between collecting property data and interpreting the market becomes important.
First, What Is an Online Valuation Model?
Many online home-value estimates are produced using what the real estate industry commonly calls an Automated Valuation Model, or AVM.
An AVM uses available data and statistical modeling to estimate property value.
Depending on the system and available information, that data might include:
Recent sales
Public property records
Tax assessment information
Property characteristics
Location
Square footage
Bedroom and bathroom counts
Lot size
Historical sales activity
Market trends
For properties with many highly similar nearby sales and reliable underlying data, automated models may have substantial information to work with.
The challenge begins when the property isn't easily represented by those data points.
The Algorithm Hasn't Walked Through Your House
This sounds obvious, but it's one of the biggest differences between an automated estimate and a property appraisal involving an inspection.
A database may know that two houses are each approximately 2,400 square feet, have four bedrooms and three bathrooms, and were built around the same time.
What it may not fully understand is that one has been meticulously maintained while the other has substantial deferred maintenance.
One may have a professionally renovated kitchen, updated bathrooms, newer mechanical systems, and high-quality finishes.
The other may still have many original components.
On paper, they can look remarkably similar.
In the eyes of buyers, they may be very different properties.
An appraiser can observe those differences and then investigate whether the market recognizes them.
Extensively Renovated Homes Can Be Difficult for Automated Models
Renovations are one of the clearest examples.
Suppose two houses in the same subdivision were originally built with similar floor plans.
One remains largely original.
The other has undergone extensive renovation, including a redesigned kitchen, updated bathrooms, new flooring, improved interior finishes, and substantial mechanical updates.
Public records may still describe both homes similarly.
Same approximate age.
Similar square footage.
Similar bedroom count.
Similar lot size.
But buyers may respond very differently to them.
An automated model has to rely heavily on the information available to it. If important renovation information isn't captured—or if the quality and extent of those improvements can't be adequately interpreted—the estimate may not reflect the distinction buyers make.
Appraisers don't simply ask whether a property was renovated.
We consider what was renovated, the quality of the work, its condition, its utility, and how the market appears to respond to comparable improvements.
Condition Is Hard to Reduce to a Database Field
Condition is another major challenge.
There can be an enormous difference between:
“Built in 1995”
and
“Built in 1995 and maintained exceptionally well for three decades.”
Likewise, a relatively new property isn't necessarily in superior condition.
Homes experience different levels of maintenance, wear, renovation, and repair.
A property may have a newer roof, HVAC system, windows, flooring, kitchen, and bathrooms.
Another property from the same era may need significant work.
If the underlying data doesn't capture those differences accurately, an automated valuation can miss part of the market story.
Unique Homes Create Unique Problems
Automated valuation tends to become more difficult when a property doesn't resemble many surrounding homes.
I've appraised properties where the question wasn't simply:
“What are similar homes selling for?”
The harder question was:
“What actually qualifies as similar?”
Consider properties with:
Unusual architectural designs
Custom construction
Significantly larger or smaller living areas
Uncommon floor plans
Extensive additions
Multiple garages
Workshops or outbuildings
Specialty improvements
Large amounts of acreage
Unusual site characteristics
High-end custom finishes
When dozens of nearly identical homes have recently sold nearby, identifying the competitive market may be relatively straightforward.
When the subject is unlike almost everything around it, professional judgment becomes considerably more important.
Acreage Can Confuse Simple Comparisons
Lot size sounds like an easy variable.
One property has half an acre.
Another has five acres.
Surely the five-acre property is worth more.
Maybe—but the analysis isn't that simple.
Not every acre contributes equally to value.
Acreage can differ in:
Topography
Usability
Access
Shape
Drainage
Improvements
Privacy
Development potential
Location
Market demand
A five-acre parcel consisting largely of difficult terrain may compete differently from five highly usable acres.
And additional acreage can sometimes demonstrate diminishing contributory value.
An algorithm can identify the number of acres.
Understanding how buyers in that particular market react to those acres is a different question.
Finished Basements Are Another Common Trouble Spot
Finished basements are especially relevant in many residential markets.
Two houses might each have 2,000 square feet of above-grade living area.
One has an unfinished basement.
The other has a professionally finished lower level with a recreation room, bathroom, office, wet bar, and walkout access.
Those homes may not compete the same way.
But basement information in public records can be inconsistent, incomplete, or lacking the detail necessary to understand the quality and utility of the space.
Even when an automated model recognizes basement finish, it still has to determine how buyers value that particular improvement.
A basic finished basement and an extensively finished walkout lower level aren't necessarily equivalent.
Additions Can Create Data Problems
Home additions can also cause complications.
Sometimes public records accurately reflect them.
Sometimes they don't.
A property owner may believe the house contains 3,000 square feet while another data source reports 2,500.
That discrepancy can occur for many reasons.
An addition may not have been incorporated into a particular record. Different measurement practices may have been used. Some spaces may not meet the same criteria for inclusion in gross living area.
An automated estimate built on inaccurate or incomplete property characteristics can only work with the data it receives.
This is why verifying the physical characteristics of the property matters.
Views Are Difficult to Put Into a Spreadsheet
Consider two otherwise similar homes.
One looks directly at another row of houses.
The other backs to an attractive wooded area.
Or perhaps one property has a desirable water, golf-course, or panoramic view.
How much difference does that make?
There isn't a universal answer.
The important question is whether buyers demonstrate a measurable preference for that characteristic in that market.
A database may recognize certain location attributes.
But views can be highly property-specific.
The quality, permanence, orientation, and desirability of the view may all matter.
This is the kind of characteristic that often requires context rather than simply another data field.
Busy Roads and Other External Influences Can Be Difficult to Quantify
Location isn't just a ZIP code, subdivision, or school district.
Two homes can be located only a few streets apart and still have different market influences.
One may back to a busy roadway.
Another may be located on a quiet interior street.
A property might be near:
Commercial development
Railroad tracks
High-voltage transmission lines
Industrial uses
Heavy traffic
Noise sources
Parks or open space
Other external influences
The existence of one of these characteristics doesn't automatically mean a specific percentage should be deducted from value.
An appraiser investigates whether the market demonstrates a reaction and, when possible, how significant that reaction appears to be.
That's considerably more nuanced than simply identifying geographic proximity.
Quality Isn't the Same as Square Footage
Another lesson from decades of appraisal work is that two houses of equal size aren't necessarily equal substitutes.
Imagine two 3,000-square-foot homes.
One has relatively basic construction and finishes.
The other has superior materials, detailed craftsmanship, higher-quality cabinetry, upgraded flooring, custom millwork, and a level of construction buyers clearly recognize.
Square footage alone can't explain the difference.
Construction quality and overall appeal can influence buyer behavior.
This is one reason relying heavily on simple metrics such as price per square foot can produce misleading conclusions.
Unusual Garage and Outbuilding Configurations Can Be Difficult
Garages are another characteristic that may look straightforward in a property database.
But there's a substantial difference between:
An attached two-car garage
An oversized three-car garage
A detached garage
A heated workshop
An RV-sized garage
Multiple outbuildings
A garage with specialized improvements
The question isn't simply how many vehicles can fit inside.
The appraiser considers the feature's quality, utility, compatibility with the property, and—most importantly—how buyers in that market respond to it.
A large workshop may be highly desirable in one market segment and provide much less appeal in another.
Highly Customized Homes Can Be Especially Challenging
Homeowners sometimes make improvements specifically for their lifestyles.
There's nothing inherently wrong with that.
A home is meant to be lived in.
But highly personalized properties can become difficult to value because the number of buyers seeking the same characteristics may be limited.
Examples might include unusual room conversions, elaborate hobby areas, highly customized entertainment spaces, specialty workshops, or unconventional layouts.
The owner may have spent substantial money creating those features.
But cost doesn't automatically equal market value.
An automated system may have even greater difficulty because the feature itself may not appear meaningfully in the underlying property data.
Neighborhood Boundaries Don't Always Define the Market
Another challenge is determining which properties truly compete with the subject.
The closest sales aren't automatically the best comparable sales.
Sometimes the most relevant competing property is farther away because it shares the subject's:
Design
Price range
Quality
Lot characteristics
Acreage
Condition
Amenities
Buyer profile
An automated model may analyze geographic patterns very effectively, but appraisal requires understanding the competitive market.
That can occasionally mean looking beyond the immediate subdivision or neighborhood.
The goal isn't to find the closest house.
It's to identify the sales that provide meaningful evidence about how buyers respond to the subject property.
Incorrect Public Records Can Compound the Problem
Automated models depend on data.
And data isn't always perfect.
I've encountered situations where property information didn't fully reflect what was physically present.
Potential discrepancies can involve:
Gross living area
Bedroom count
Bathroom count
Basement finish
Garage capacity
Additions
Lot characteristics
Property condition
Renovations
If an automated model begins with incorrect information, its conclusion may be affected before any valuation analysis even occurs.
A professional appraisal provides an opportunity to verify relevant property characteristics rather than simply assuming every database is correct.
Rapidly Changing Markets Can Create Another Challenge
Even a relatively typical home can become harder to value when market conditions are moving.
Closed sales tell us what happened in the recent past.
But an appraiser may also need to consider what is happening around the effective date of the appraisal.
That can involve studying:
Recent comparable sales
Pending activity
Active competition
Marketing times
Inventory
Price reductions
Seller concessions
Buyer demand
Market trends
If conditions have changed, older sales may require additional analysis.
Automated systems can incorporate market trends, but an appraiser's job is to determine whether the data being applied is actually relevant to the subject's specific competitive market.
An Online Estimate and an Appraisal Aren't Trying to Do Exactly the Same Thing
This distinction is important.
An online estimate can be a useful starting point for general curiosity.
A professional appraisal is a different type of analysis.
The appraiser identifies the property being valued, researches the relevant market, analyzes appropriate comparable sales, considers differences between those sales and the subject, and develops an opinion of value for a specific effective date and intended use.
That distinction becomes especially important when the valuation will be used for matters such as:
Estate or probate purposes
Divorce
Refinancing
PMI removal
Pre-listing planning
Tax matters
Financial decisions
Legal matters
In those situations, understanding why the evidence supports a value conclusion can be just as important as the number itself.
Sometimes the Online Estimate May Be Reasonable
It's also important not to overstate the issue.
Automated valuation models aren't automatically wrong.
For a relatively typical home in an area with many recent, highly comparable transactions and accurate property data, an automated estimate may land reasonably close to what the market evidence ultimately supports.
The problem is assuming that the same reliability applies equally to every property.
It doesn't.
The more unusual the property, the weaker the available data, or the more important its condition and individual characteristics become, the more difficult automated valuation can be.
What 26+ Years of Appraising Has Taught Me
After more than 26 years appraising residential real estate, I've learned that the hardest properties aren't necessarily the largest or most expensive.
They're often the properties where the important differences require interpretation.
A computer can identify that one house has 2,500 square feet and another has 2,700.
The more difficult questions are:
Does the market care about that difference?
How much does it care?
Are these properties actually competing for the same buyers?
Is one property's superior condition more important than the other's additional size?
Does that acreage provide meaningful additional utility?
Is the renovation something buyers will pay for?
Those questions require market evidence, context, and professional judgment.
That's ultimately what residential appraisal is about.
The Bottom Line
Online home-value tools can be useful.
But a home is more than a collection of database fields.
Condition, quality, renovations, location influences, acreage, views, additions, basement characteristics, functional utility, and unique improvements can all affect how buyers perceive a property.
The more a home differs from typical surrounding properties, the more important it becomes to understand those differences within the context of the actual market.
After 26+ years of appraisal work, one lesson remains consistent:
The number is only as meaningful as the analysis behind it.
Need a Professional Opinion of Your Property's Value?
At 24 Hour Appraisal Group, we provide independent residential appraisal services backed by more than 26 years of appraisal experience.
Whether your property is relatively typical or has characteristics that make it difficult to compare, we analyze the property, relevant comparable sales, market conditions, and buyer behavior to develop a well-supported opinion of value.
If you need an appraisal for estate or probate purposes, divorce, refinancing, PMI removal, pre-listing planning, tax matters, or another valuation need, we're here to help.
Contact 24 Hour Appraisal Group today to schedule your residential appraisal.
