How Home Values Are Calculated: AVMs, Appraisals, and Comparables Explained
Three completely different processes — AVMs, appraisals, and CMAs — all produce a number called "home value." Each one is designed for a different decision, uses different inputs, and lands on a different number.
Understanding how each method works helps you pick the right tool for the question you're actually trying to answer.
Method 1: The AVM (automated valuation model)
An AVM is a statistical model that estimates value in seconds. It pulls comparable sales from the last 6–12 months within a defined radius, weights them by similarity to your home, and adjusts for differences in square footage, lot size, beds, baths, age, and condition.
AVMs are best for quick estimates, exploratory decisions, and tracking value over time. They're not used by lenders for final underwriting, but a strong AVM is often within a few percent of the appraised value for a typical home.
Method 2: The licensed appraisal
A licensed appraiser physically visits your home, measures it, documents condition, photographs every room and the exterior, and writes a formal report. The appraiser then selects 3–6 comparable sales ("comps"), adjusts each comp for differences from your home (typically $50–$100 per square foot for size differences, several thousand for a finished basement, etc.), and arrives at a reconciled value.
Appraisals are the gold standard because they're regulated, documented, and defensible. Lenders require them for almost every purchase and most refinances. They cost $400–$700 and take 1–2 weeks.
Method 3: The CMA (comparative market analysis)
A real estate agent or mortgage professional prepares a CMA using the same comps an appraiser would consider, but with local market context an algorithm can miss — buyer demand in your neighborhood, condition trends, seasonal timing, upcoming developments.
CMAs are free when you're working with an agent on a potential listing or a lender on a potential refinance. They're not as rigorous as an appraisal but often more accurate than an AVM because a human can see things the algorithm can't.
What "comparable" actually means
Real comps are within 0.5 miles of your home, sold within the last 6 months, similar in size (within 20%), similar in age, and on similar lot sizes. The fewer adjustments an appraiser has to make, the more reliable the value.
Homes that sold over a year ago, on different streets, or with very different features aren't true comps — but they sometimes show up in cheap AVMs, which is one reason estimates vary.
Frequently asked questions
What's a good comparable sale?
Same neighborhood, sold within 6 months, similar size, similar age, and similar condition. The fewer adjustments needed, the better the comp.
Why might an appraisal come in low?
Usually because recent comps in the area sold for less than expected, the home has condition issues, or the contract price was simply above market.
Can I challenge a low appraisal?
Yes. Through your lender, you can submit a "reconsideration of value" with better comps or factual corrections. Success rates vary, but it's worth trying when you have evidence.