Evaluating Your Portfolio in an Uncertain Market – An eBook for Lenders of All Sizes
Boots on the Ground: Automated Valuation Models the New Drive-by Appraisal
Drive-by appraisals have historically been the norm, even if you are a lender who finances insured deals that don’t require a conventional appraisal. Drive-by appraisals are the closest thing that lenders have to putting boots on the ground to validate the information submitted in an application. While drive-by appraisals can be very helpful, during the winter months it can be far more difficult to view what is under the snow. They are also cost prohibitive because many lenders perform drive-by appraisals at their own expense. If something is revealed that causes a lender to want to back out of the deal, they have to absorb the cost of both the initial underwriting and the drive-by appraisal.
Many lenders, even smaller lenders with less resources than the big banks, have discovered that technology enables them to put virtual boots on the ground at a fraction of the cost of drive-by appraisals.
What should you look for in a tool to replace the need for drive-by appraisals?-by appraisals?
- Aerial and street view imagery – selecting a tool that offers this type of imagery enables you to see more of the property you are financing as well as any adjacent structures.
- Automated Valuation Model (AVM) – tools that offer AVM functionality enable you to quickly estimate a property’s value at the click of a mouse and often review far more information than is even included in a standard appraisal. They review both information about the characteristics of a property as well as comparable sales in the neighbourhood. Where an appraisal may only look at 2-3 comparable sales, an AVM will look at all comparable sales in a neighbourhood when deriving a value.
- Equity estimate – tools that enable you to look at registered mortgages help you to estimate the equity that has been stated in the application.
- Data source – this is very important. When relying on technology it is important to know where the data comes from. Where real estate is concerned, it is advantageous to work with providers who obtain their data from the most current and accurate sources – directly from the provincial land registries for example.
While technology like AVMs may replace the need for a drive-by appraisal, many lenders actually couple the use of an AVM with a full appraisal. Why? Because an AVM as one example is a great way to vet a deal at the application stage and determine if there is value in moving forward with a full appraisal.
The drive-by appraisal, while still valuable, no longer holds the power it once did. Additionally, it is often surpassed by the various tools that allow you to accomplish far more, and much more easily.
Purview has those tools. Find out how you can take advantage by visiting https://purview.ca/.
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