There are AVMs (Automated Valuation Models) and then there is the Matrix AA-AVM (Appraiser Assisted Automated Valuation Model). The difference is that most AVM's are built by non-appraisers using simple algorithms applied across all markets using unscrubbed and often incorrect data. A sampling (15 randomly selected properties) of one popular AVM (Zillow's Zestimate) found that there was a margin of error of +/- 13% and only 40% (6 of the 15 properties) fell within a mean error of +/-5%. The Matrix AA-AVM has a margin of error of +/- 3% for 96% of its results. The key differences between the Matrix AA-AVM and the typical AVM are as follows:
1) The Matrix was developed and built by an appraiser with over 35 years of appraisal experience.
2) The Matrix platform is market specific. In this case it is specific to the Bluegrass Market Area of Kentucky. Most AVM's work across all markets and use broad assumptions. They can produce reliable results for large, homogenous markets. Unfortunately the vast majority of real estate markets are not homogenous. As previously discussed, the Zillow Zestimate produced reliable results for 6 of the 15 properties in the sample. Of those 6 properties, 5 were located in large homogenous subdivisions built out by the same builder/developer in the last 15 years.
3) The Matrix utilizes "Comp Universes" comprised of actual properties appraised, analyzed and verified while most AVM's use the most recent sales pulled from big data providers that are within a 1 mile radius. Being close and recent does not make a sale "comparable" - it only makes it close and recent.
4) The Matrix involves an actual appraiser and has various levels. Level 1: An actual appraiser inspects and measures the subject property and may also interview the property owner or other knowledgeable person to collect the necessary data for input into the model. Level 2: An actual appraiser interviews the property owner or other knowledgeable person to collect the necessary data for input into the model. Level 3: No inspections or interviews however an actual appraiser pulls property data from publicly available data as well as MLS databases. Any client provided data is also utilized. An AVM requires someone to type in the property address.