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If you have been on listing appointments, you know it doesn’t take long for the topic of online valuations to emerge. Even before meeting with you, you can almost guarantee that most sellers, have checked online to see what the online AVMs (automated valuation models) say their home might be worth.
A significant part of the listing appointment will be how you respond to their impressions of their home’s actual value.
Our team has learned to head this off proactively instead of waiting for the topic to come up by implementing the following four steps:
Step 1: Produce a side-by-side AVM comparison
Our goal in this first step is to help sellers understand that any AVM, in and of itself, is not an effective way to value a property.
Although one AVM for any given property might be close to reality, there is usually a wide disparity when comparing a few AVMs side-by-side.
We produce a spreadsheet that shows three separate AVM valuations next to each other so that they are easy to compare. We frequently see dramatically different numbers that can be a significant percentage apart.
In our market, three readily available AVMs are Zillow, realtor.com and Homes.com. If one of those three does not provide a value, we also go to a site such as Redfin. The easiest way to get their valuation is to type the address into Google.
Under the results, you should quickly find the three different websites — click on each, and, in most cases, the AVM will pop up right away. If, for some reason, the site does not show up in the Google search, go directly to each site and type in the address. The AVM should pop up on the front page unless the home is new or has just sold.
To test this, while writing this post, I ran the numbers on a home close to mine that had not been on the market for years.
- Zillow put the value at $1,155,800
- Redfin came in second at $1,229,396
- realtor.com followed at $1,233,400
- Homes.com would have made the homeowner very happy with an AVM of $1,532,012
STEP 2: Present your AVM comparison to the seller
After viewing the home, we gather at the dining room table to go over our presentation. We present our AVM spreadsheet, which includes the following preamble:
What is an automated valuation (AVM)? It’s a fast and easy way for homeowners or prospective buyers to get a ballpark value for any given home.
AVMs are programs that automatically analyze various data points to produce an estimated value of a specific property. Online visitors can visit an AVM website (the most famous is Zillow’s “Zestimate”), type in a property address, and the AVM engine will use linear and multiple regressions to form an estimated market value.
The engine’s algorithm typically uses the age of a home, current market values, area trends, historical data, specific features of the property, and so on.
Although it’s well-known that AVMs (automated valuation models) can be speculative and inaccurate, it’s a good idea to examine what the various websites are listing as the current value for your home.
In most cases, there is a noticeable difference between the valuations. Many sellers are shocked to see the spread between the numbers, which then allows us to explain how AVMs work and how the data can be misrepresentative based on the property’s actual condition and upgrades.
We then explain that AVMs by any website can fluctuate dramatically in a short period based on what is happening in the local market. We use the following example from a home we recently sold:
As an example, the initial Zestimate for a home we recently sold was $1,434,031. Based on the level of amenities, we listed the home at $1,599,950. The very next day, the Zestimate jumped to $1,691,056.
Once the home was in contract one week later, the AVM jumped again to $1,806,823.
In the meantime, realtor.com showed the value at $1,615,734. With 11 offers, the home sold for $2 million, and 60 days later, the Zestimate showed the value to be $2,080,800 while Redfin placed the value between $1,720,000 – $1,890,000.
We follow up with:
Any AVM will be averaging home values in any given neighborhood based on historical sales — not property condition or the level of amenities of any specific home. AVM valuations are speculative and therefore cannot be used to accurately value a home. For this reason, appraisers will never use AVMs to provide market values for any given home.
STEP 3: Explain the difference between an AVM and a CMA
Our AVM spreadsheet explains,
The best and most accurate valuation for any given property will be a Realtor’s comparative market analysis (CMA). Instead of simply looking at overall market trends and a home’s configuration, a CMA takes into account property conditions, amenities, upgrades, condition of the overall neighborhood and other specifics that an AVM cannot effectively address.
The CMA platform we prefer to use is www.cloudcma.com because it’s possible to include all of the pictures from every property included in the CMA. Using all the images helps sellers quickly understand the difference between the various homes, and it further accentuates why AVMs are unreliable. Teams and agents can also set up a Cloud CMA to include Zestimates, further underscoring your message.
STEP 4: Remove pricing objections
We conclude our presentation with the following script:
Any real estate agent on any given day can promise you that they can get you a specific price. Unfortunately, this is simply not true. The number you see in our CMA is the recommended list price if you chose to go on the market today.
Since we are not going on the market today, we will rerun these numbers the day before we go live to ensure that we’ve dialed in the list price correctly for that market at that time.
Even then, the final price you receive is going to be contingent on:
- The level of your amenities
- The amount of property preparation you are willing to do
- Professional staging
- The quality of the photos and other listing media
- The state of the market when you go live
- Most importantly, the number of buyers who are currently out looking for a home like yours (once it hits the market) and what they are willing to pay for it
As you can see, there are a vast number of variables that will impact your selling price. As for any agents who say they can get you a specific price? We call that practice “Buying your listing,” and it is deceptive and misleading.
Once pricing is off the table, you can then focus on the things that differentiate you from other agents. Chances are, by helping them understand pricing, that might be all the differentiation you need to win the day, the listing and the clients.
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Carl Medford is the CEO of The Medford Team.