Ever go to an internet real estate valuation site? The newest player is ZILLOW.com   These sites collect generall property information and sales of homes of similar size and by applying adjustments and rounding - come up with a real estate value.  These are called AVMs - or Automated Valuation Models.  Because no person actually views the property to record value adding features such as professional landscaping, recent remodeling, views, etc. the value determined is "at best" a value of an average quality / average condition home in the area.  The worst house in the area will most likely be overvalued, the best  house undervalued.  Another problem is that AVMs often use old sales data - so the real estate value provided may not be current. 

Lenders and brokers using Automated Valuation Models (AVMs) and homeowners using "free online home values" to determine the value of a property need to know what those results aren't telling them.

1. Whether the house is really there or if the public record actually reports the property as it is.  Often with newer homes the public information will not have the size of the house - making a computer generated value useless. 

2. Whether the property has features or conditions that might add to or detract from market value.

3. How long ago the property was assessed. Many AVMs and free online services rely on public assessment records. In California property taxes are based on the price the home was purchased for - plus allowable annual increases (I think the max is 2% per year - even in times when prices went up 20% or more).  Thus the assessed value of residential real estate in California typically has no relationship to current value.   

4. What makes the comparables comparable. A computer might compare your subject property to another property with similar square footage sold 9 months ago a mile away. In areas where superior and inferior developments abut the computer might pull sales from the less similar location - resulting in a poor value estimate for your property. 

5. Whether a market is declining. Automated valuations use data from recent, nearby sales. If those sales were completed at the peak of a local housing market, the computer will think the trend is going up. Even if a professional appraiser knows that the overall neighborhood is beginning to experience a downturn. As a lender, don't get stuck with a property that's been overvalued by a computer.

I personally think AVMs are a great tool for lenders - and I would order one on every loan I was getting ready to make or purchase - not so much to determine value, but as a test against the appriaser.  Understanding with a well qualified borrower with plenty of equity a computer generated value is fast and cheap - and serves the purpose.  But part of any appraiser's job goes beyond determining value of the property being appraised.  The best appraisers do a great job describing the property to help the lender understand what they are making a loan upon and the current market conditions affecting that property. However, there are also formula appraisers with appraisal skills no better than that of a computer.  And there are appraisers who will manipulate data in order to overvalue a property to facilitate a loan (and commission) for a loan broker - ofcourse doing such is a violation of the Uniform Standards of Professional Appraisal and could be determined to be Mortgage Fraud - a Federal offence.