Automated Appraisals: Fast and Cheap, But Here's the Catch

Automated property appraisals have changed how lenders assess value. Instead of waiting weeks for an appraiser to show up, take measurements, and write a report, lenders can get instant value estimates from computer algorithms.

For investors, this means faster closings and lower costs on many transactions. But there’s a catch—and if you don’t understand it, automated appraisals might cost you money in ways you don’t expect.

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How Automated Appraisals Work

Automated valuation models (AVMs) crunch vast databases of property information—recent sales, property characteristics, tax assessments, market trends—to estimate what a property is worth. They do this in seconds rather than weeks.

The technology has gotten remarkably accurate for certain property types. Major lenders increasingly rely on AVMs for qualifying transactions because they’re faster, cheaper, and reduce friction in the lending process.

When Automated Appraisals Make Sense

AVMs work best for standard properties in areas with lots of recent sales data.

Think of a typical single-family home in an established subdivision where houses sell regularly. The algorithm has plenty of comparable sales to analyze. The properties are similar enough that adjustments for differences are straightforward. In these conditions, AVMs produce reliable estimates.

Good candidates for automated appraisals:

• Standard single-family homes in suburban areas
• Properties in original or typical condition
• Areas with regular transaction activity
• Straightforward purchase transactions

Benefits you get:

• Instant value estimates (know immediately if numbers work)
• Lower Appraisal costs (often a few hundred less than traditional)
• Faster closing timelines (no waiting for appraiser scheduling)

For straightforward purchases of properties that haven’t been renovated, automated appraisals deliver speed and cost savings without significant accuracy tradeoffs.

The Catch: Renovations Don’t Count

Here’s where automated appraisals fall apart for investors: they can’t see renovations.

An AVM pulls data from public records, tax assessments, and comparable sales. It knows your property has three bedrooms and 1,500 square feet built in 1985. What it doesn’t know is that you just spent $40,000 on a complete kitchen renovation, new bathrooms, and refinished hardwood floors.

That beautiful renovation that added real market value? The computer doesn’t see it. The algorithm values your property based on what the records show—the original construction characteristics—not the improvements you’ve made.

This matters enormously for BRRRR investors. The entire strategy depends on forced Appreciation through renovation. You buy distressed, renovate to add value, then refinance to pull out your capital. But if the refinance uses an automated appraisal that can’t see your improvements, you won’t capture the value you created.

When You Need a Full Appraisal

For any transaction where capturing renovation value matters, you need a traditional appraisal with a licensed appraiser who physically inspects the property.

Get full appraisals when:

• You’ve completed significant renovations
• You’re refinancing to extract equity from improvements
• The property has unique features AVMs won’t recognize
• You’re in a rural area with limited comparable sales
• The property is unusual for the area

Yes, full appraisals cost more and take longer. But the additional value captured from properly assessing your improvements typically far exceeds the incremental cost. If a full appraisal captures $25,000 more value than an AVM, paying an extra $300-400 for that appraisal is an obvious win.

Cost-Benefit Math

Before choosing appraisal type (when you have a choice), run the numbers.

Scenario 1: Standard Purchase You’re buying a property in original condition. AVM saves $350 and two weeks. The value estimate will be similar to a full appraisal. Take the savings.

Scenario 2: Post-Renovation Refinance You’ve added $40,000 in value through renovations. AVM can’t see it. Full appraisal captures the improvements. The extra $350 gives you access to $32,000 more equity (at 80% LTV). Easy decision—get the full appraisal.

Scenario 3: Minor Updates You’ve made some cosmetic improvements but nothing dramatic. AVM might undervalue slightly, but the difference may not justify full appraisal cost. Calculate whether the potential equity difference exceeds the cost differential.

What Lenders Actually Do

Not all lenders offer automated appraisals, and those that do may restrict their use to specific transaction types. Many lenders use AVMs behind the scenes even when ordering traditional appraisals—as screening tools, risk monitors, or checks against potentially inflated appraisals.

Ask your lender early in the process:

• Do you offer automated appraisal options for this transaction?
• Can I choose between automated and traditional?
• What happens if the automated value comes in low?

Some lenders allow full appraisals after automated valuations prove insufficient. Others may have more restrictive policies. Understanding your options before committing helps you plan accordingly.

Using Multiple Valuation Sources

Smart investors don’t rely on any single valuation source.

Combine information from:

• Automated valuations from multiple providers
• Comparative market analysis from your agent
• Your own assessment based on recent sales you’ve tracked
• Professional appraisals when warranted

When valuations diverge significantly, investigate why. AVMs might miss recent improvements. Agent analyses might reflect optimistic assumptions. Understanding each method’s strengths and limitations helps you interpret what the numbers actually mean.

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Frequently Asked Questions

The Bottom Line

Automated appraisals are tools—useful in some situations, problematic in others.

For standard purchases of properties in original condition, they offer genuine speed and cost advantages. Take them when they make sense.

For refinances after renovation, unique properties, or any situation where capturing property-specific value matters, full appraisals are worth the extra cost and time. The technology can’t replace human eyes and professional judgment in these cases.

Know when each tool fits. Use the right one for your situation. That’s how you get the benefits of automated appraisals without falling into the trap of leaving money on the table.

Written by

LendCity

Published

January 26, 2026

Tags

Property Valuation Brrrr Renovation Mortgage Basics Investment Strategy

Key Terms in This Article

Appraisal

Appraisal

A professional assessment of a property's market value, required by lenders to ensure the property is worth the loan amount.

Appreciation

Appreciation

The increase in a property's value over time, which builds equity and wealth for the owner through market growth or forced improvements.

BRRRR

BRRRR

Buy, Rehab, Rent, Refinance, Repeat - a real estate investment strategy where you purchase a property below market value, renovate it to increase value, rent it out, refinance to pull out your initial investment, and repeat the process with the recovered capital.

Equity

Equity

The difference between a property's current market value and the remaining mortgage balance. If your home is worth $500,000 and you owe $300,000, you have $200,000 in equity. Equity builds through mortgage payments, appreciation, and property improvements.

LTV

LTV

Loan-to-Value ratio - the mortgage amount expressed as a percentage of the property's appraised value or purchase price (whichever is lower). An 80% LTV means you're borrowing 80% and putting 20% down. Lower LTV generally means better rates and terms.

Market Value

Market Value

The estimated price a property would sell for on the open market under normal conditions. Determined by comparable sales, location, condition, and market demand.

Refinance

Refinance

Replacing an existing mortgage with a new one, typically to access equity, get a better rate, or change terms. Investors commonly refinance to pull out capital for purchasing additional properties (cash-out refinance) while retaining ownership of the original property.

Hover over terms to see definitions, or visit our glossary for the full list.

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