Automated Valuation Models (AVMs) and property appraisals are both commonly used by lenders, but, while they share many similar characteristics, they aren’t the same.
AVMs are available online, on-demand, and produce the current market estimates for residential properties by applying advanced mathematical models to a database. 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 based on our national property information database.
Property appraisals are completed by an appraiser and often require them to visit a property to assess 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.
So, what exactly is the difference between an Automated Valuation Model and an appraisal?
Automated Valuation Models can be used by lenders as a substitution to a property appraisal, depending on the risk policies they are following; they can also be used in several other use cases for example to qualify a customer, educate a customer, or for portfolio evaluation. Many lenders will use an AVM when the mortgage application is submitted to gain insights into their customer(s) and determine whether they want to move forward with a deal; they will often request a property appraisal much later in the process.
Additionally, a lender can gain even more insight when they use PurView in addition to an AVM as they will receive title information, ownership information and many other data points that will help evaluate risk on the property. When a lender accesses the Teranet AVM coupled with PurView data they will be informed of any registered encumbrances, which can help identify if there are any undisclosed mortgages or registered mortgages that look different than what the customer indicated in their application.
Automated Valuation Models are also more cost-effective than appraisals as they are generated digitally, in real-time, and don’t require the manual work and in-person visit of an appraiser. However, appraisals and AVMs work hand-in-hand, as an appraiser can uncover internal property conditions that may affect the value of a property.
To learn more about how Teranet’s AVM and PurView can help you manage opportunity and risk across the lending lifecycle, contact your dedicated account manager.