If leveraged the right way, agents can use automated valuation models to help explain their process for determining a list price with a seller and build the agent-client relationship.

This post was updated Oct. 14, 2021. 

Automated valuation models (AVMs) can sometimes drive real estate agents crazy. These models, which use a number of metrics and market data to predict a home’s current market value, can vary widely in results across the different companies that produce them.

Most agents have probably encountered the seller who believes that if the Zestimate is in their favor (read: priced high), then it must be 100 percent accurate. Unfortunately, it’s sometimes an agent’s duty to dismantle that seller’s pipe dream — and it can be a huge hassle to have to prove your own expertise over Zillow’s.

Still, if leveraged in the right way, an agent can use AVMs to help better explain their own comparative market analysis (CMA) or other process for determining a list price with a seller.

That’s why it’s important for agents to understand the ins and outs of AVMs and build a strategy for how to discuss them with clients so that they’re prepared when they inevitably ask them why their home can’t be priced as high as their most recent Zestimate.

The AVMs your clients might reference

Zillow Zestimate

The Zestimate, which is arguably the AVM most well-known to consumers, now uses something called “neural network technology” (only for off-market home Zestimates) to process hundreds of millions of data points when assessing home value. The model essentially operates as a human brain might, collecting, organizing and analyzing data.

As of Zillow’s most recent update in June, the company says the technology has become more accurate, reducing its median error rate of off-market homes to 6.9 percent. The median error rate of on-market homes is just 1.9 percent.

In addition to MLS and county and tax assessor records, the Zestimate takes into account home characteristics (size, bathrooms, location), on-market data like listing price, comparable homes in the area, listing description, market trends and more.

Homeowners can also edit their home’s features on Zillow if they see outdated data. Although the Zestimate highlights one median value estimate, it also provides users with a Zestimate range of low- to high-value estimates.

Redfin Estimate

The Redfin Estimate also draws on many of the same data points as the Zestimate — over 500 of them, according to a Redfin rep — including MLS data, information about the market, the neighborhood, home characteristics, and the company’s proprietary machine-learning software as its cloud technology work in tandem to create an estimate.

Redfin’s AVM is similar in accuracy to the Zestimate — it has a median error rate of 2.86 percent for homes currently for sale and 6.93 percent for homes off the market. Like Zillow too, users can edit their home’s number of beds, baths or square footage if it’s no longer accurate.

Movoto Home Value Estimator

Movoto, OJO Labs’ home search platform, has a home value estimate tool that also includes a range of estimated values from low to high. The tool allows users to toggle between properties currently on the market, and properties that have recently been sold to produce two different estimated home values.

Because error rate of the AVM varies widely by geographical region, the company does not provide an overall median error rate like Zillow or Redfin (which both also break down their AVMs’ error rate by state and metro area).

Pat McLoughlin

A unique feature of Movoto’s AVM is that it allows users to remove comparable properties that the tool is using to generate an estimate if the user feels like that home is much different from the property in question.

“So let’s say an AVM is generated for my property, [and] it comes in at $500,000,” Pat McLoughlin, CEO of Digs by OJO, told Inman. “I look at the properties that it’s comparing my property to, and I see [there’s] actually this property that is nothing like mine for $250,000. I can remove that from the calculation and it will actually readjust my AVM to be slightly higher because that one property is taken out of the equation.”

McLoughlin said the company sees this feature as a way to “allow the user to self-serve a CMA,” something that a real estate agent working with a client would likely do anyway.

Realtor.com Home Value Estimates

Dave Masters

Unlike the previously mentioned sites, realtor.com does not have its own proprietary AVM. Instead, the company provides consumers with three different AVMs on properties from Collateral Analytics, CoreLogic and Quantarium, reputable companies that often will provide valuations to mortgage lenders or other financial institutions.

“We think giving customers the ability to see a variety of these numbers is an important way to sort of think through the conversation as we’re seeing more and more choices,” Dave Masters, realtor.com’s director of product management, told Inman.

How to keep AVM client conversations in check

Real estate agents have traditionally had a bit of a fraught relationship with AVMs. Before listing their home, a curious seller is apt to check on their Zestimate, Redfin Estimate and more.

The problem is, that especially if the home hasn’t been on the market for many years, the AVM likely doesn’t know what the current condition of the home is or what upgrades have been made more recently.

6 top tips for working through the Zestimate objection

Here are a few tips from the pros on how to overcome pricing objections.

  • Remind clients of your expertise
  • Note that AVMs aren’t perfect
  • Give clients visuals of the data
  • Remind clients that the appraiser is the one to please
  • Tell them AVMs are just one puzzle piece in pricing
  • Be transparent

Below, we’ll go deeper on each tip.

1. Remind clients of your expertise

Andy Krause

Andy Krause, senior manager of applied science at Zillow, said that a common complaint among consumers is that the Zestimate doesn’t take into account a unique feature recently added to the home. Those types of concerns are actually a great entry point for agents to showcase their value, he said.

“A lot of clients are upset, ‘Oh, Zillow’s not factoring in this really unique feature in my backyard,'” Krause said. “You’re probably right — and that’s why you’re working with an agent to figure out how to price that into your value.”

2. Note that AVMs aren’t perfect — especially in a hot market

AVMs can also change daily, depending on what’s happening in the market. And with the volatile market seen in the past couple years, AVMs have had a tough time keeping pace.

David Palmer

David Palmer, a Redfin Seattle agent, told Inman the one thing he can reliably predict about AVMs, is that the AVM will be one number before it’s put on the market, it will change to a different number once it’s active on the market, and that it will change yet again after it’s seen a day or two of online interaction with the public.

When homes have sold for hundreds of thousands of dollars above asking in the wild, buyer-fueled market of recent months, Palmer said the Redfin Estimate has been totally unpredictable.

“I’ve had listings be $200,000 over asking price,” he said. “And the Redfin Estimate is going nuts.”

Carl Medford

3. Give clients visuals of the data

Inman contributor Carl Medford wrote in a September 2021 story for Inman that he likes to show clients examples of real listings he’s had and how their AVMs have changed between right before the home has been listed through until after it goes under contract, to give them an idea of how widely they vary over time, and therefore, how they should be taken with a grain of salt. Ultimately, he brings the conversation back to the appraiser.

“AVM valuations are speculative and therefore cannot be used to accurately value a home,” Medford tells his clients. “For this reason, appraisers will never use AVMs to provide market values for any given home.”

4. Remind clients that the appraiser is the one to please

Palmer said he tends to not bring up AVMs independently of his clients asking about them because at the end of the day, as Medford noted, it’s the appraiser, not the AVM, that will be determining a home’s value.

“If AVMs come up, I’m happy to talk about it, but it’s really going to come down to a third-party appraiser that doesn’t care about the AVM,” Palmer said. “It’s going to be looking more at how are they going to get it past the board they need to get it past, and then that board needs to get it past the underwriter.”

5. Tell them AVMs are just one puzzle piece

Masters said that it’s crucial for agents to inform clients that AVMs are just “a piece of the puzzle.”

“I think overall, we view AVMs as a piece of the value story,” he explained.

Pulling numbers from all the resources available to them, including local comps and other CMA tools, helps agents — and ultimately their clients — “paint a bigger picture” of what the local market looks like and where a client’s home fits into that, Masters added.

6. Be transparent about AVMs

Michael Napolitano

Although some agents, like Palmer, might refrain from leading the homeselling conversation with AVMs, Michael Napolitano Jr., broker-owner of RE/MAX Edge Team and a Zillow Premier Agent, argued that not bringing up AVMs at all would be dishonest and could ultimately cost an agent.

“Over the years, I’ve found that when someone parts ways with their first agent and moves on to the next agent, it’s because the agent didn’t provide a full, transparent, experience,” Napolitano said. “They didn’t communicate well, and sometimes they didn’t necessarily communicate well on how they arrived at this entry pricing.”

Email Lillian Dickerson

A look back

Agents have been fighting the Zestimate objection since, well, the Zestimate took hold. Here’s a look at some sage advice on explaining Zestimates to real estate clients from Inman contributor Tyler Smith in August 2016.

Regardless of your sentiment about the internet behemoth, Zillow took the real estate industry to a whole new level. Coveted data that had previously been exclusive to real estate professionals is now available for the common consumer or the curious looky-loo.

It has become a supplemental part of our profession, whether we like it or not. Honestly, it would be a miracle if you had a client who had never visited Zillow at one time or another.

Some people believe that real estate marketplaces, such as Zillow, are the beginning of the end for real estate agents.

I disagree. Just like every other industry in the world, real estate has to evolve. We have to embrace technology, and Zillow is just one piece of technology that agents have to adapt to.

Although Zillow might be the bane of a real estate agent’s existence, it does provide consumers with access to data and can be a convenient source of information.

However, some of that data can make our jobs more difficult. Zestimates are probably one of the most problematic features on Zillow. Zestimates are Zillow’s home value estimator.

The problem is that consumers see a price tag attached to their property and without fully understanding, they set their heart on that number. As real estate agents, we know better, and we often have the difficult task of having to tell our clients that their home might not actually be worth what the Zestimate is reporting.

Although telling clients things they don’t want to hear is a common part of our job, there are ways to cushion these blows.

After all, it’s not our fault their home isn’t worth what an arbitrary formula spits out. When you approach situations like this with facts, clarity and confidence, you will be saving you and your clients a lot of stress in the long run.

Here’s a few things that will help you better explain Zestimates to your client:

1.  First and foremost, Zestimates is not an appraisal

The data is based on the home’s physical attributes, tax information and previous sale records. Zestimates do not know if the kitchen has upgraded commercial appliances or is home to 25 indoor cats; these things can definitely affect the value of the property both negatively and positively.

2. Get familiar with the fine print

Zillow’s FAQs clearly explain that nationally, Zestimates are currently within 20 percent of the final sale price 82.5 percent of the time. This means that a Zestimate could be 20 percent higher or lower than a home’s actual value. That’s a pretty significant margin of error.

3. Show clients your research (you’ve done your research, right?)

Show them the CMA and explain what factors are causing the Zestimate to be inaccurate (or in some cases, accurate).

4. If the Zestimate is higher than the market value of the home, explain the outcomes

The longer the home sits on the market, the more likely buyers will wonder what’s wrong with it. Additionally, if you do get an offer for a home that is priced above market value, a bank is unlikely to loan more money than the home is worth.

5. Give your clients some options such as an automatic price reduction

If the home doesn’t get any offers in a certain amount of time, the price will automatically be reduced until it’s at market value.

It’s important that your clients list their home as accurately as possible. This is not an opportunity to test out the market. If you do, the market will test you out, and sadly, you will lose.

Although Zillow and Zestimates have helped increase real estate awareness, it’s important to remember that when it comes to the value of a home, you are smarter than a computer. You eat, sleep and breathe real estate. Your client hired you because you are the real estate expert, and you need to articulate that you are the professional.

Tyler Smith is founder and CEO of SkySlope. You can follow him on Twitter or on his blog.

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