Automated Valuation Model or AVM is a service that uses mathematical modeling to estimate the value of an asset. These AVMs are used in real estate to estimate the value of properties.
They are easy to generate by lenders and agents. They contain a hedonic model along with a repeat sales index. Both these models are weighed and analyzed for generating the price estimate.
Advantages of using AVMs:
• AVMs are faster and cheaper for estimation of the value of a property.
• They are consistent valuation without any discrepancy which is generally seen in manual valuation by different appraisers.
• They help in validating traditional appraisals, especially in valuating high risk loans.
Disadvantages of using AVMs are:
• They do not take into account the present condition of the property. It assumes the average condition of the property since physical appraisal is not done.
• Properties that are newly built find it difficult to valuate using this technique as there might not be any comparable property or due to the absence of historical data.
• The data given might not be complete.