Automatic Valuation Models (AVMs): Weighing the Pros and Cons

Bob Wiltse, REALTOR®

June 2, 2025

When estimating a home’s value quickly, many buyers, sellers, and agents turn to Automatic Valuation Models (AVMs). These computer-driven algorithms analyze public records, recent sales, tax assessments, and other data points to generate a value estimate. In this post, we’ll explore the advantages and disadvantages of AVMs in residential real estate, using a specific example property, a 3-bed, 1-bath house with 1,823 sq ft of living space on a 4,635 sq ft lot, to illustrate why different AVMs can spit out wildly different numbers.

What Is an AVM?

At their core, AVMs are computer programs that automatically estimate a home’s market value. They typically pull together:

• Public data: Recent sales in the same neighborhood, tax assessment records, and property characteristics (bedrooms, bathrooms, square footage, lot size, etc.).

• Market indicators: Include Overall supply and demand, price trends in the ZIP code or school district, and time-on-market statistics.

• Algorithmic weighting: Each AVM weighs and combines data points differently. Some emphasize recent sales, others tax records, and some factor in local price trends more heavily than others.

When you enter a property address into an AVM platform (Zillow’s Zestimate, Redfin Estimate, Realtor.com AVM, etc.), the model runs its algorithm and churns out a “market value” estimate. But how reliable are these values? And why might you see values like $892,917, $758,151, $1,052,300, and $958,000 for the same house?

What are the pros and cons of AVMs?

Advantages of AVMs

1. Speed & Convenience

   • Instant estimates: Within seconds, you get a ballpark figure for a property. No waiting for an appraiser or agent.

   • User-friendly tools: Many AVM platforms are free, mobile-friendly, and require nothing more than an address.

2. Market Trend Insight

   • Data aggregation: AVMs often incorporate hundreds of recent sales and up-to-date market trends. That means you immediately see how your neighborhood’s prices are moving.

   • Regular updates: A good AVM will refresh its data frequently, sometimes weekly or daily, so estimates can adjust quickly after new sales are posted to the public record.

3. Baseline for Pricing Strategy

   • Quick sanity check: If you plan to list your home, seeing multiple AVM estimates gives you a rough range to start from before commissioning a formal appraisal or consulting your agent.

   • Buyer leverage: As a buyer, you can compare lender appraisals or listing prices against AVM estimates to flag potentially overpriced or underpriced homes.

4. Low (or No) Cost

   • Free or low-fee access: Unlike a full appraisal (which might run $300–$500+), most AVMs are free or come bundled with other services.

   • No travel required: The model never needs to physically inspect the property, saving you time and cost.

Disadvantages of AVMs

1. Data Quality & Completeness

   • Inaccurate or incomplete public records: If a sale wasn’t recorded properly, or a vital home update (like a kitchen remodel) isn’t in tax records, the AVM won’t know about it.

   • Lag in updates: There’s often a delay between when a home sells and when that sale appears in public databases. Depending on the platform, an AVM might still be relying on older information.

2. Lack of Human Judgment

   • No interior condition assessment: AVMs can’t walk through a home to note deferred maintenance, unique upgrades, or design flaws. Two homes with identical square footage and lot size can differ substantially in condition, something an AVM can’t gauge.

   • No weighting of “intangibles”: Features like curb appeal, neighborhood reputation, school boundary changes, or even major upcoming infrastructure projects get little to no consideration.

3. Model Variability

   • Different algorithms yield different results: Because each platform’s developers choose which data points to weigh more heavily (tax assessment vs. recent sale price vs. price per square foot), two AVMs can produce different values for the same house.

   • Market nuance missed: A broad AVM might not fully capture local market “quirks,” say, a wave of downsizing boomers in one subdivision. Smaller, hyper-local trends tend to get smoothed out.

4. Overreliance Pitfalls

   • False confidence: A homeowner might see a high AVM value and assume their home is worth that exact figure, even if the underlying data is flawed. Listing too high, or too low, based solely on an AVM can backfire when it meets real buyers (and their appraisers).

   • Limited in volatile markets: In highly dynamic or fast-shifting markets (e.g., early 2021 in many suburban areas), AVMs sometimes underreact or overreact, generating stale or exaggerated values.

Example: Why Four AVMs Gave Four Different Values

Let’s take our sample property: 3 bedrooms, one bathroom, 1,823 sq ft living area, 4,635 sq ft lot, located in (for example) ZIP code 01890, and imagine four popular AVM providers spit out:

1. $892,917

2. $758,151

3. $1,052,300

4. $958,000

Why such a wide range, more than $300,000, between low and high?

1. Differences in Recent Sales Data

   • AVM A ($892K) might prioritize sales from the last 30 days within a 0.5-mile radius, ignoring sales older than 90 days. If there was a flurry of higher-priced sales just a month ago, its estimate skews upward.

   • AVM B ($758K) could be referencing sales from 6 months ago as its primary comparables, missing those hotter recent transactions entirely. In that case, its baseline is more conservative and lags behind the current market surge.

2. Variations in Data Sources

   • Public vs. Private Data: Some AVMs pull strictly from town or city tax assessor records (which report assessed value, not necessarily sale price) combined with MLS sales data; others incorporate private MLS feeds or user-submitted listings. If Private AVM C ($1,052K) has access to off-market sales or recent private investor deals, it might boost its value compared to those relying solely on public record sales.

   • Tax Assessor Lag: ZIP code 01890’s tax assessor might value homes 5–10% below market. An AVM that uses assessor value as a baseline (AVM B) could be anchoring from that undervalued number, hence its lower estimate.

3. Weighting of Home Characteristics

   • Square Footage Emphasis: If AVM C ($1.05 M) aggressively weighs price per square foot, it might treat every home in the region as valued at $600/sq ft. At 1,823 sq ft, that yields about $1.09M, close to AVM C’s number. Conversely, AVM B may place more weight on bedroom/bathroom ratios (3 beds, 1 bath) and assign a lower “per-bedroom” multiplier because 1 bathroom is on the low end for 3 beds.

   • Lot Size Consideration: Some AVMs bump values for larger lots. At 4,635 sq ft, this property is smaller than the neighborhood median lot size (say, 6,000 sq ft). AVM A might penalize for that smaller lot, whereas AVM D ($958K) may give it neutral treatment, presuming the lot size is “average.”

4. Market Trend Adjustments

   • Recent Appreciation Rates: In 01890, if home prices rose 10% year-over-year, an AVM that updates quarterly (AVM D) might have only baked in a 5% annual appreciation, understating today’s market, whereas AVM C, updating weekly, captures the latest 12% run-up.

   • Time-on-Market Metrics: Some models subtract value if similar homes are lingering longer on the market. If in the last 30 days, 3-bedroom, 1-bath homes averaged 45 days on the market (longer than usual) AVM B might slash its estimate accordingly, whereas AVM A might ignore days-on-market entirely.

5. Condition & Upgrade Factors (or Lack Thereof)

   • No Interior Inspection: All four AVMs see only “3 br, 1 bath, 1,823 sq ft, 1910 build year,” but none know if the home was renovated, has knob-and-tube wiring, or suffered water damage. Some AVMs assign an average condition rating (say, “fair”); others use tax assessment notes, if those are outdated, which further muddles the baseline.

6. Geographic & Neighborhood Nuances

   • School District Weighting: AVM C might give extra weight to the local school district’s reputation; if 01890 was rated “B-” instead of “A-,” it may shave off 3% of its value. AVM D might not factor in schools at all.

   • Proximity to Amenities: Some AVMs add a “proximity premium” for homes within 0.2 miles of a commuter rail station; if this sample house is 0.3 miles away, it gets no premium in AVM B but a minor 2% bump in AVM A.

Summing Up: When (and How) to Use AVMs

Advantages in Practice

• Quick Check: If you’re brainstorming a potential listing price or purchase offer, AVMs can give you a ballpark range in seconds.

• Market Trend Snapshot: By comparing multiple AVM outputs over time, you can see if values are rising or falling, even before official sales data posts.

Pitfalls to Watch

• Don’t Take Them as Gospel: As our sample property’s range ($758K to $1.05 M) shows, no AVM is infallible. Always supplement an AVM estimate with:

  1. A Comparative Market Analysis (CMA) from a local agent who visits and condition-checks the property.

  2. A licensed appraiser’s report, especially if it’s a high-stakes transaction or if the home has unique features.

  3. On-site inspections (for condition, upgrades, or deferred maintenance that no computer program can reliably detect).

• Beware of Data Gaps: If the AVM’s underlying data is stale or erroneous, your result will be, too. Check the “last updated” date on any AVM platform, and cross-check public records (e.g., Massachusetts Land Records deed registry) for recent sale prices.

Recommendations for Homeowners and Agents

1. Use Multiple AVMs, But Don’t Obsess Over the Exact Number

   • View the outputs from Zillow, Redfin, Realtor.com, and any brokerage-specific AVMs. Clustering between $850K and $920K suggests a reasonable “sweet spot.” If one is drastically higher or lower, investigate that model’s methodology.

2. Augment with a Local CMA

   • A licensed real estate agent, particularly one experienced in your neighborhood, will adjust for interior condition, curb appeal, and any remodels or additions that AVMs can’t “see.”

3. Monitor Market Trends Separately

   • Even if the AVM you favor lists last-sale data at $892K, check MLS or a list of closed sales in the last 30 days versus the same period a year ago. A swift 7% jump in median price indicates your AVM number is already outdated.

4. Communicate AVM Limitations to Clients

   • If you’re the listing agent, educate sellers that AVMs are a starting point, not a final answer. Show them how you reconcile AVM values with your on-the-ground knowledge of comparable homes.

Conclusion

Automatic Valuation Models can be a powerful tool to get an immediate sense of a property’s value, especially for busy agents and consumers who want a quick benchmark. However, as our 3 bed/1 bath example shows, differences in data sourcing, algorithmic weighting, update frequency, and market nuance contribute to value estimates that can vary by hundreds of thousands of dollars. Always treat AVM outputs as rough guidelines to achieve an accurate, defensible price. Augment them with a local Comparative Market Analysis, a professional appraisal, and your own market expertise when needed. By understanding the advantages and recognizing the limitations, you can harness AVMs smartly, using them as one tool in your real estate toolkit rather than the sole determinant of value.