its a biased automated bot,
Think about it this way: they make you think the domain is very expensive, so you end up buying it with them, and then reality hits as you try to sell the domain for even 1/10 of what the evaluation tool said it was worth.
Yes, there can be exceptions to this, but rarely
I use it and I have positive feedback about considering that is a free automated tool.
The estimation is more reliable if there are similar domains already sold.
I use also estibot that is more reliable imo.
It's a good starting point if you have no experience.
I know also that many domainers have no a positive evaluation about these tools.
Dangerous for new people entering the industry - you see an available domain to hand register and Godaddy Bot values it at 1K plus when in reality it's not worth hand regging......you register it and loads more and then find out the awful truth......your holding onto a great big pile of s***
Ignore the "Estimated Value" row, but still use it for each domain name valuation. Just look for the "Comparable domains sold" section. Here you can find some past sales, valuable pieces of information.
And in some cases the GoDaddy appraisal value is a useful metric to compare a lot of domains quickly, for example when researching a list of domains on Expireddomains.net.
You have to learn and develop domaim valuation skill overtime.
But I will tell you a shortcut that is the summery of many posts/articles on this subject:
List recent historical sales (last 1-2 years) from Namebio, in Namebio filter set price > $1000 and pick the following venues (Private, Sedo, Afternic, DomaimMarket, BuyDomains). These venues were most sales are retail, other venues are mixed wholesale & retail.
List historical sales in an excel sheet and one by one find the following metrics:
Number of taken TLDs (use dotDB.com)
It is better to also check number of developed TLDs from#1.
Number of search results in Google, you have to do exact search with quotations "MyDomain" without spaces and without .com. The idea is to find if the name is used somewhere by companies, social networks handles...etc.
Domain category / industry
If it is a keyword domain you can also search monthly search volume (use Google Adwords planner) and CPC, if it is Brandable domain then this metric is not relevant.
Comparable historical sales. Search the keywords in the domain separately in Namebio. For example "NamePros.com" search for "Name" in Namebio and write down number of sales and dollar volume.
Now you have a table of historical sales with most relevant data to domain values, study the data try to understand what makes value, try to find relations and derive your own formula.
Most important also is data from your own porfolio what does sell and what does not? Where you buy domains from and which buying source lead to most sales? ...etc
While there are single word xyz names that are sold in upper 3 digits or 4 digits, the same name will be evaluated as less than $100 by GD and many other sites and rarely valuated up to $400. Many .coms are being evaluated to be $1xxx by GD while you can see the same names end up expired without renewal by the domain owner or sold at a much lower price.
The real value of a domain is established when the demand for that name comes up and how much the buyer is ready to pay for that (which in turn depends on how much he/she would earn out of the business he is planning to run on that site. Or when a common name which a celebrity / rich person buy for a huge amount)