Are AVMs and appraisals the same thing? This is a very common question that mortgage brokers ask, and the short answer is: no!
Let’s dive a bit deeper into the difference between an AVM and an appraisal, and how an AVM can benefit your business as a mortgage broker.
What’s the difference between an AVM and an appraisal?
AVMs are available online, on-demand and produce the current market estimates for residential properties by applying advanced mathematical models to a database of rich property information. Depending on the provider, AVMs may use slightly different methods or data. For example, the Teranet AVM leverages a cascade of two property statistics models to provide the best valuation of properties based on available neighbourhood comparables, as well as Teranet’s proprietary machine-learning model that leverages our national property information database.
Property appraisals are completed by an appraiser and often require an in-person visit to a property in order to assess both interior and exterior features. The appraiser will choose sales comparables that they believe are most relevant and factor in the condition of the home and their opinion of the property into the value estimate.
How do AVMs benefit mortgage brokers?
Using an AVM can help mitigate risk and give you the confidence that you’re investing time and effort in a deal that is likely to close.
Typically, some mortgage brokers obtain approval and wait until an appraisal is completed to begin underwriting a deal and validate other information with the borrower. However, if you use an AVM for due diligence during the application stage, you’ll save your borrower(s) money and other key stakeholders some time.
PurView has much more than just an AVM to keep you better informed about the value of a property.
The street and aerial images of the property, neighbourhood market analysis and sales history, will provide more context about a property and help prevent any delays that may result from incorrect or undisclosed information. Validating this information at the application stage and before the deal is submitted to a lender helps identify potential roadblocks and streamline the deal process. It also helps you to have an informed discussion with your borrowers as you position yourself as a trusted advisor.
Should an AVM be used for every deal?
While an AVM is an excellent tool to help you learn more about a property and the feasibility of a deal and is beneficial because it is much faster and more cost-effective than an appraisal, there are instances when an appraisal is a better choice. For example, in some cases, an AVM may not be perfect because it is based on statistics. If a property was recently updated with a big renovation that was completed a few weeks prior, the value in an AVM may not reflect this, so you’d want to use an appraisal for this property. Additionally, AVMs are much more accurate in urban areas where there are more properties and sales transactions to be factored into the comparables used to calculate the value. In rural areas there are not as many comparable properties, so you may choose to use an appraisal to better understand the value.
To learn more about how Teranet’s AVM can help you optimize your business, contact your dedicated account manager.