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Why You Can’t Fully Trust Online Property Valuation Platforms

Image for the article - Why You Can’t Fully Trust Online Property Valuation Platforms
Why You Can’t Fully Trust Online Property Valuation Platforms

Welcome to the fast-paced world of real estate, where property valuations hold the key to making sound decisions. Thanks to the fast-evolving technologies, online valuation platforms and Automated Valuation Models (AVMs) are becoming smarter and smarter, emerging as the go-to tools for fast property value estimates.

But hold on! Before you dive headfirst into this tech-driven realm, let’s unveil the intriguing truths about these platforms and why you might want to tread cautiously.

What are online property valuation platforms?

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An online property valuation platform is a web-based service or application that uses sophisticated algorithms and data analysis to generate property valuations. Users typically input information about the property, such as its address, size, number of bedrooms and bathrooms, and other relevant details. The platform then processes this information, compares it to recent sales data, and analyses market trends to generate an estimate of the property’s current value.

Some examples include CoreLogic’s AVM, REA’s realEstimate, NAB Property Insights, etc.

 

Why do we love them?

Image of 64d337aaed034f6fd0e5b2a7 What is an automated valuation model or AVM

Online property valuation platforms are popular because of obvious reasons:

1. Speed and Efficiency

In a world where time is money, online valuation platforms race ahead, providing property valuations at lightning speed. From seasoned pros to homeowners, getting an estimate is now just a few clicks away, saving you precious time and effort.

2. Cost-Effectiveness

Professional appraisals cost hundreds of dollars for every property. If you just need insights for decision making, oline valuation platforms have your back with a much more pocket-friendly solution, slashing costs while keeping you informed.

3. Accessibility

Gone are the days of exclusive property valuations. Thanks to online platforms, you hold the power in your hands. Accessible to all through user-friendly websites and apps, these tools level the playing field for everyone.

But why should we NOT fully trust them?

Limitations of online valuation platforms cannot be ignored:

1. Limited Data Inputs

While getting smarter and smarter, online valuation platforms still have a blind spot. They rely on publicly available data, missing out on recent improvements that can sway a property’s value.

Example:

You purchased a property for $500k, and renovated the whole house in the 6 months following settlement – new kitchen, new bathrooms, new floorboards, etc. After the renovation, you wanted to get an updated property value. The online valuation platforms might tell you that the house is worth $525k because the market grew by 5% over the past year; However, an on-site valuation might show that the property is worth $650k considering the added value by the renovation.

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2. Lack of Human Judgment

Machines lack the human touch. Online valuation platforms lack the expertise and subjective judgment that human appraisers bring to the table.

Example:

We assume that a mansion close to Sydney Harbour was divided into 4 apartments with the same number of bedrooms, bathrooms, and similar floor area. Online valuation platforms might provide similar value estimates for each of these apartments, adjusting slightly by their levels and orientation. However, a human valuer could advise that the top floor unit facing the Harbour Bridge and the Opera House is worth $1m more than the others because of its stunning view.

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3. Accuracy Variability

While these platforms aim for bullseye accuracy, there’s a catch. It all depends on the data quality, the algorithm’s mojo, and market conditions. In turbulent times, these virtual valuations might not hit the mark.

Example:

During a real estate market downturn, an online valuation platform may not be able to factor in the decline in property values accurately and provide overly optimistic valuation results. Trusting these results, sellers could miss on good offers because of unrealistically high price expectation; and buyers could pay more than they should have.

4. Inability to Adapt to Market Nuances:

Real estate markets can experience rapid changes and localised trends that online valuation platforms may not effectively capture. As a result, their estimates might not reflect the current dynamics of specific neighbourhoods or regions.

Example:

The expansion of a hospital could bring a surge in popularity in the surrounding suburbs. An online valuation platform might not capture the rapid increase in property values, leading to an undervaluation of properties in that area.

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5. No Physical Inspection

Online platforms might analyse numbers like magicians, but they can’t wave a wand for a physical inspection. Consequently, they may overlook critical issues that can only be identified through a physical inspection, such as structural problems or hidden defects.

Example:

Foundation issues on a house can significantly affect its value. However, online valuation platforms cannot identify these issues and therefore cannot take into account the cost of fixing the issues. On-site valuations, on the other hand, not only consider market trends and comparable sales, but also the condition of the house, making it much more precise than online valuations.

Image of 64d33ba096e7f969d503bc96 Foundation Inspection Need

6. Limited Applicability to Complex Cases

Like a Rubik’s cube, complex properties baffle online platforms. Custom-built homes, those with multiple structures, or properties with mixed-use purposes are not suitable to be valued with AVMs, as AVMs’ generic algorithms might not account for the intricacies of such properties.

Example:

A custom-built, eco-friendly home with unique energy-efficient features might be challenging for an online valuation platform to assess accurately. Its algorithm might not be equipped to recognise the added value of eco-friendly elements.

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7. Overemphasis on Data Recency

Online platforms heavily rely on recent sales data. This can be a problem when there are not enough recent sales.

Example:

Potts Point, a Sydney suburb, only had 8 houses sold in the past 12 months. It’s hard for an online valuation platform to collect enough recent comparable sales data to value a house in this suburb. Therefore, the valuation result might not align with market realities.

Image of 64d33e96c0bb224a53255f81 Data Scarcity

Whilst online valuation platforms dazzle with their speed and convenience, it’s essential to recognise their limitations and supplement them with human expertise. After all, automated valuations rely on online data, the quality, quantity, and timeliness of inputs are not controllable, and therefore can make massive difference. Want to navigate the property market with confidence? Blend the efficiency of online platforms with the expertise of real estate pros.

Australia’s property market is moving fast. Are you losing on opportunities because of imprecise value estimated provided by online valuations? Or are you always offering more than necessary in fear of losing a bid? You may want to use a good buyers’ agent! InvestorKit buyers’ agency evaluates target properties with both AVMs and human know-hows to make sure your offer is as close to the market value as possible – not too low to lose the bid and not too high to waste your money. Would like to work with us and nail your next investment property? Talk to us today by clicking here and requesting your 45-min FREE no-obligation consultation!

 

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