AVM Tools vs Appraisals: What’s the Difference? | Pennymac (2024)

There are plenty of online tools to help you determine what your home is worth, but not all tools are created equal. Choosing the right Automated Valuation Model (AVM)—and using it in tandem with a true appraisal—is the best way to educate yourself about the value of your home.

When you’re thinking of purchasing a home, refinancing a loan, or applying for a second mortgage, one of the first things you need to know is the value of your current home. Many potential homebuyers turn to online estimating tools like AVMs for a low-cost way to estimate home value.

However, it’s important to know the differences between an AVM estimate and a true appraisal in order to account for important variables and secure your loan. Read on to learn more about differences between AVM tools and appraisals, and see how Pennymac’s Home Value Estimator compares to other AVM tools.

What Is a Real Estate AVM?

Automated Valuation Models use data points and a mathematical model to estimate real estate property value. In order to produce an estimate, the AVM tool uses two types of evaluation: a hedonic model and a repeat sales index. The results of each are weighted, analyzed, and then reported as an overall estimate.

These tools typically provide a “point in time” estimate based on county tax records, mortgage records, recent sales history, analysis of comparable properties, and other data points. Some tools also take into account previous surveyor valuations, historical house price movements, and user inputs like number of bedrooms, significant property improvements, etc.

Different AVMs rely on different data inputs, which can result in two very different estimates for the same home. For example, if one tool accounts for data last sold but another tool accounts for the year the home was built, you could end up with estimates that vary by thousands of dollars. In addition, if certain information is missing from public records—like an ownership deed, home sale report, or mortgage record—it can significantly affect the estimate.

Appraisals vs. AVMs: What’s the Difference?

Potential homebuyers use AVMs to estimate home value because they are quicker, more affordable, and more readily available than a formal appraisal. However, not all lenders accept AVM estimates as part the loan process, and the AVM will not capture everything an appraisal could.

An AVM is a mathematical estimate of your home’s worth based on known factors. Therefore, it is less equipped to deal with the unknown or intangible factors that come up during a physical inspection. An online home estimator also cannot see physical things like wiring that isn’t up to code, broken gutters, or other aspects that negatively affect the value of the property.

Conversely, the AVM can’t see the aspects of your home that increase its value. A desirable school district nearby, a fully landscaped backyard, and a beautifully remodeled kitchen can all increase your home’s worth—but an AVM won’t be able to factor it in.

The appraisal process, on the other hand, will account for all of these factors and more. While an appraisal may take longer and cost more, you get the best picture of your home’s value when it is appraised by a licensed, certified professional.

It is best to think of an AVM as a precursor to an appraisal. Prospective buyers can use an AVM in the early stage of the lending process to see if your estimate is close to the lenders’ figures. If the property comes in way under value, it’s likely the deal won’t work and you may not need to pay for a formal appraisal after all. If your AVM estimate is close to your lender’s estimate, an appraisal is a natural next step to tie up loose ends and get a formal valuation to work with.

Comparing Online Automated Valuation Models

If you’re in the early stages of selling your home and want to get a baseline estimate of your home’s value, an online AVM tool may be a good place to start. Before you start plugging in information about your home, take a look at the different AVM tools on the market to pick the right one for you.

Pennymac - Home Value Estimator

Pennymac’s Home Value Estimator is a free online AVM tool that provides two independent estimates, including the Zillow Zestimate®. The report produced by the Home Value Estimator includes important details about:

  • Estimated home value and Zestimate®
  • Price per square foot
  • Home details (number of bedrooms, number of bathrooms, lot size, year built, etc.)
  • Sales history
  • Value history and estimated value by quarter
  • Comparable sales in the area
  • Locations of comparable home sales

Zillow - Zestimate®

Real estate website Zillow provides a “Zestimate®” that includes current estimated home value and a Zestimate® forecast, which predicts home value one year from now. The Zestimate® is calculated based on public records and user-submitted data. Homeowners can update details about their home (like a new bedroom), which is incorporated into the next Zestimate®.

Trulia - Trulia Estimate

Real estate website Trulia offers a free AVM tool called “Trulia Estimate.” The Trulia Estimate is calculated based on public records and agent-reported transactions, taking into account the physical characteristics of the home, property tax information, and recent comparable sales.

Choosing the Right AVM Tool

With so many AVM tools on the market, it can be hard for potential homebuyers to choose the right one. When you’re getting started with the homebuying process, try to keep each tool in context:

  • Look at the factors and data inputs the tool is using. Ideally, you want to use an AVM tool that pulls information from a wide variety of reputable sources. Data availability may vary by state and county, so if possible, look into the regional accuracy of the tool you have in mind.
  • Ask your lender for a recommendation. Lenders deal with AVMs daily. They know which ones typically deliver the most accurate results and which ones to stay away from.
  • Take these numbers with a grain of salt. Keep in mind that AVMs only provide an estimate of your home’s value. If your numbers come in lower or higher than you expected, there is no harm in meeting with your lender to discuss your options.

An AVM is a valuable source of information, but it’s only one step in the process. Browse AVMs to choose the right one for you, and work with your lender to arrange a formal appraisal when you’re in a position to move forward.

Check out Pennymac’s online home value tool to get a free, instant estimate of your home’s value, or contact a Pennymac Loan Officer for more advice.

AVM Tools vs Appraisals: What’s the Difference? | Pennymac (2024)


AVM Tools vs Appraisals: What’s the Difference? | Pennymac? ›

Automated Valuation Model Vs. Appraisal: What's The Difference? AVMs use algorithms and models to analyze property data, generating valuations automatically. Appraisers conduct physical inspections and consider various factors to determine property value.

What is the difference between an AVM and appraisal? ›

An AVM can save you time and effort when you need an initial estimate fast, like if you're trying to figure out whether a house is overpriced. Because a traditional appraisal requires a professional to go to your property and evaluate your home for several hours, they can be quite expensive.

How accurate is AVM in real estate? ›

Key Takeaways. Automated valuation models (AVMs) are software-based pricing models used in the real estate market to value properties. AVMs are more efficient and consistent than a human appraiser, but they are also only as accurate as the data behind them, meaning they may be outdated or incorrect.

Which is more accurate, a CMA or an appraisal and why? ›

A comparative market analysis can reveal a property's fair price range; however, it is not considered by lenders or real estate experts to be as good or accurate a method as an appraisal by a licensed and certified appraiser.

How is a valuation different than appraisal? ›

Appraisal: An appraisal generally serves as a pricing guide or a benchmark and often lacks legal standing. It is primarily used for internal planning or negotiations. Valuation: A valuation offers a definitive value and is frequently used in legal matters such as divorce settlements, estate planning, or legal disputes.

What are the three main types of appraisals? ›

There are three internationally accepted methods of measuring the value of property: the cost approach, the sales comparison approach and the income approach. Depending on the nature of the property being valued, one or more of the approaches may be used by the assessor.

How much does an AVM appraisal cost? ›

AVM vs.

The biggest difference between an AVM and an appraisal is that an AVM is usually free, and an appraisal has a cost. The cost of an appraisal is usually $500 – $800 or higher (depending on the property and current demand). An additional difference is that AVM is immediate, while an appraisal takes time.

What is the most accurate home valuation? ›

Zillow offers one of the most accurate estimators overall. Being one of the top real estate sites on the internet, Zillow has a very accurate estimator that has helped many people in their journey to sell their homes. Most people turn to Zillow for all of their real estate needs.

Which property valuation is most accurate? ›

Next, when you have your heart set on a property and you're sure it's the right one, it's a good idea to buy a valuation from a registered valuer. This is the most accurate estimate of a property's value available, and will most likely be required by your lender anyway.

In what scenario might a human appraiser be needed alongside AVMs in the real estate industry? ›

AVMs may encounter difficulties in valuing complex or unique properties, such as luxury homes or properties with extensive amenities. These properties often require detailed appraisals by professionals familiar with their unique features, highlighting a limitation of AVMs in assessing such properties accurately.

What is the most accurate appraisal method? ›

Cost Approach to Value

The cost approach can be used to appraise all types of improved property. It is the most reliable approach for valuing unique properties.

Why is appraised value higher than market value? ›

Why do appraised and market value differ? Because the appraised value is what a professional appraiser believes a property is worth versus the market value, which is what the buying public is willing to pay.

What negatively affects a home appraisal? ›

Having outdated appliances, plumbing, electrical, and HVAC systems could decrease the value of your property. Dated features in your home's interior could imply that the property has not been well-maintained, which could raise concerns about any underlying issues.

Can a seller want more than the appraisal? ›

Yes, it's possible to sell your house for more than its appraised value, especially in a seller's market where demand exceeds supply. However, the buyer's ability to secure financing at a higher price can be a hurdle unless they're willing to pay the difference in cash or have secured appraisal gap coverage.

When can an evaluation be used instead of an appraisal? ›

The Guidelines state that an evaluation is needed when a transaction qualifies “for the appraisal threshold exemption, business loan exemption, or subsequent transaction exemption.” The appraisal threshold exemption clarifies that any mortgage under $250,000 (the threshold will likely be raised to $400,000 soon) can ...

What is the difference between appraisal and replacement value? ›

Fair Market Value is what someone would expect to pay for a vehicle or for a vehicle to sell for at a reasonable sale. Replacement Value Appraisals provide the amount to replace the vehicle. Knowing the difference of these two appraisal types and when to use them is important.

What does AVM mean on a real estate listing? ›

What is an AVM? Automated valuation models (AVMs) are statistically based computer programs that use real estate information such as comparable sales, property characteristics, and price trends to provide a current estimate of market value for a specific property.

What are the two main distinctions between a CMA and an appraisal? ›

While a CMA is a fairly casual process driven by an agent's experience and instinct, an appraisal is a formal valuation. Rather than being driven by the selling process, an appraisal occurs on the buyer's end, and it's typically driven by the needs of the mortgage lender.

What does allow AVM mean in real estate? ›

An AVM, or automated valuation model, is simply a computerized estimate of a home's value that a lender might use to begin determining its value. AVMs are efficient, effective and essential tools in loan manufacturing. AVMs help expedite processes, lower costs and minimize risk.


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