Automated Valuation Models (AVMs) are increasingly becoming popular because they provide multiple advantages to mortgage professionals.
They can be used to verify a property’s estimated value, mitigate risk, and are available online.
In this blog, we take a closer look at AVMs, discuss their accuracy, examine how they are different from appraisals, and see how they can be leveraged effectively.
Why is an AVM Used?
An AVM is basically a mathematically based computer program. It is a home value estimator that provides you a residential property value estimate by analyzing factors including public records, property location, and market conditions.
AVMs are used because they unlock several benefits for real estate and mortgage professionals. Some of these include:
- Cost savings – they are not as expensive as traditional appraisals.
- Provision of real-time information – there is practically no wait time and you get quick access to the required information.
- Issues can be identified sooner – this helps you plan for further due diligence and avoid any surprises at the later stages of the process.
- A computer-based program – this eliminates the possibility of a human bias influencing the outcome.
How is it Different from An Appraisal?
The main differences are:
- It is a computer-based program that can be accessed online. While an appraisal is an estimate of a property’s value provided by a professional appraiser.
- In an appraisal, the appraiser selects comparables that will be used in the valuation. Whereas, an AVM looks at all comparable sales, not just the selected ones.
- Appraisals can be influenced by how the appraiser feels about the property whereas an AVM cannot. AVMs look at factual data, so they’re not affected by opinions and sentiments.
- For an appraisal, the appraiser has to visit the property while AVMs are performed online.
Is an AVM Accurate?
The factor that determines the accuracy and credibility of an AVM is its data source.
Hence, the key is to choose a provider who has access to accurate, up to date property data.
Some AVM providers, for instance, rely on MLS systems, which derive their data from their sales records. Any sale registered relevant to a property could be included in their AVM. However, this is not the most complete data because it relies on registered sales – what about private sales? They can easily be missed.
Teranet obtains data (which is relied upon in its Purview application), from the Province of Ontario Land Registration Information System (POLARIS).
POLARIS is the most comprehensive property data source available in the province. Any time a property is transferred/mortgaged/remortgaged in Ontario, it is first registered with the land registry.
Hence, with our AVM solution, you have the peace of mind that you will receive the most current and accurate property data.
Should I Choose an AVM Or an Appraisal?
An AVM should be pulled on every single deal, while deals that involve tighter equity may also be coupled with an appraisal. The AVM gives you the benefit of a quick value estimate to determine if your deal is even worth pursuing. The appraisal supports and enhances this value by an actual visit to the property that includes additional insights like the property’s current condition.
Many lenders and brokers find value in looking at an AVM at the application stage, before the underwriting process. This helps them identify potential property valuation issues and avoid the associated expenses.
Similarly, an appraisal can cost between $300 to $400, so many lenders find it useful to look into an AVM for assessing property value before requesting their client to get a pricy appraisal done.
So, in essence, these are two different resources that can be used on their own or together, depending on your requirements.
Have further questions about AVMs or want to access one of your own? Get in touch today. Our Purview team would be happy to assist. Call 1-855-787-8439 or visit www.purview.ca.
For more on our AVM data sources, see our blog on the topic: https://www.purview.ca/accurate-avm-property-data/