Whose job is it to know a property’s true market value anyways? Likely, if a lender was asked this question, they would say you, the broker! Different lenders will perform different checks and balances to validate property value, but they will expect that your application is accurate when they receive it. If there are too many instances of your applications having discrepancies in value, this can result in irreparable harm to your relationships with your lenders.
Does this mean that you need to order an appraisal on every deal, whether your lender requires one or not? Absolutely not. What it does mean is that it makes good sense to think about the ways that you can affordably independently validate your client’s property value.
An intelligent first step here is to think about your lenders. How do they validate property value? Have you noticed instances where a lender or insurer has come back to you indicating that they think the value of your applicant’s property isn’t there? How do you think this happens? What tools are they using to come up with a different set of numbers?
This happens most often because many lenders, indeed almost all institutional lenders, leverage automated valuation models (AVMs) when underwriting deals. Did you know that this is a tool that you can use too? It is true.
What is an AVM? Here’s a great definition from the Purview website:
“An Automated Valuation Model (AVMs) is a mathematically based computer program that produces an estimate of the market value of a residential property based on the analysis of public record data, property location, market conditions and real estate characteristics at a specified date.
“An Automated Valuation Model (AVMs) is a mathematically based computer program that produces an estimate of the market value of a residential property based on the analysis of public record data, property location, market conditions and real estate characteristics at a specified date.
Typically, the street address of the subject property is entered as input into the Automated Valuation Model system. The system in turn identifies the property, checks its location, size and other key features and searches its systems database for the best set of comparables or indices to generate a value for the subject property.”
There are many different providers of AVMs – local MLS boards, municipalities, provincial governments (depending on the province within which you are located) and private enterprises all provide them. AVMs are typically available online and can be generated instantly. The cost of generating an AVM is negligible when compared to the time, resources and damage to relationships that occur when you have too many deals where property values are misstated.
Generating and even providing an AVM when you submit a deal to a lender shows your lender that you are committed to your relationship and take your responsibility as an agent or broker seriously.
Whose responsibility is it to validate property values? Everyone involved plays a role, but you can start the ball rolling with an AVM from Purview to reap the most rewards.
