AVM Accuracy?

Bank AVMs Are As Wildly Inaccurate As A Zestimate – But Will Be Regulated As Legitimate Values

By Jonathan Miller

June 24, 2024


  •    AVMs are incredibly inaccurate and are being misused in property valuation
  •    AVMs don’t consider the condition of a home
  •    The mortgage industry’s push toward automation has reduced valuation accuracy

AVM or Automated Valuation Models have been incorrectly seen as the human-less way to value property. The technology has been drifting into mortgage lending reliance for more than a decade because it has been marketed as having the ease of “pushing a button.”

The Zestimate product by Zillow introduced the consumer to the concept nearly twenty years ago…

The recent ruling to regulate the credibility of AVMs by the OCC and FDIC essentially legitimized the use of AVMs in lending. The driver behind this final rule was to eliminate potential bias in valuations by replacing appraisers with AVMS. Yet the Urban Institute study Revisiting Automated Valuation Model Disparities in Majority-Black Neighborhoods said: But even with data improvement and artificial intelligence, we still find evidence that the percentage magnitude of AVM error is greater in majority-Black neighborhoods. This finding indicates that we cannot reject the role historic discrimination has played in the evaluation of home values.

AVM software is built by humans who have inherent biases. The void in representation by the appraisal industry over the past decade on the AVM issue, to talk about those 200 feral cats living in the house being valued, has enabled AVMs to be legitimized by the federal government.

During my career, I have observed that valuation accuracy has become weaker as technology has expanded in the mortgage process. The wiz-bang concept that the appraisal of a property can be completed at the push of a button is missing the realities of valuation.

To read more, Click Here

My comments: Worth reading. Miller was involved in AVM history and, as usual, has some very interesting stories plus lots of Zillow comments.

For pro-AVM information from AV Metrics and to see how they test AVM accuracy, Click Here I have been following them for many years.

Miller used to send out a very long post once a week. I often just scrolled fast through most of it to get to the appraisal section, but I missed a lot that was worth reading. Now, he has divided it into daily posts.



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NOTE: Please scroll down to read the other topics in this long blog post on Mortgage appraisal reviews, AI and ChatGPT, freddie and fannie mortgage forecast, unusual homes, mortgage origination stats, etc

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