Automated Valuation Model Explained
What is an AVM?
An Automated Valuation Model (AVM) is an algorithm which uses statistical methods to value properties. An AVM is an estimate and should not be confused with a valuation from a registered property valuer. It provides an estimate of current value, plus a Forecast Standard Deviation (FSD) which is a measure of the accuracy of the estimate. The lower the FSD, the more confident the AVM is of the estimate.
How does an AVM work?
The AVM we use gives an estimate by comparing similar properties that have recently been sold in nearby areas. The algorithm takes into account the attributes and specifics from multiple properties when forming its analysis.
How should I interpret an AVM
An AVM provides a value estimate and a % FSD. Think of them as working in unison to provide a price range which depends on the information available about the target property, including recent sales and listings of comparable neighbours, plus any previous sales of the target (and their age).
You should think of the price range as being the AVM ± 1 FSD. For example, an AVM of $800,000 with an FSD of 10% should be thought of as a range of $720,000 – $880,000, with a best estimate halfway in between ie. $800,000.
A property might have an FSD of 5% because it has a more recent sale of its own and is more similar to recently sold or listed neighbours. That higher confidence will give its estimate a smaller (and hopefully more accurate) range.
A property with a more sparse sales market in a metro fringe suburb which last sold 20 years ago could easily have an FSD of 20%.
An AVM is an estimate and should not be confused with a valuation from a registered property valuer.