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Question of the Day – Are You a Credit Union, Finance Company, or Private Lender Still Relying Solely on Property Appraisals? Read On…
Is your credit union, finance company, or private lending institution still relying solely on property appraisals? If so, there is another tool you might consider adding to your due diligence belt.
Automated valuation models (AVMs) can complement property appraisals for lenders of any size, and particularly those who are smaller and have to do more with less resources.
Here is why:
How Alternative and Private Lenders Can Use AVMs and Property Appraisals Together
An AVM differs from a full property appraisal in that it is all conducted digitally — there is no physical, human inspection of the property. Instead, an automated program estimates value based on analysis against public record data. Some AVMs will include street view imagery, but they do not include interior and exterior conditions.
A property appraisal, however, is conducted by a human appraiser. It often includes a complete review of the interior and exterior property conditions.
When it comes to AVMs versus property appraisals, it is not a question of either-or. Instead, it is a matter of both-when.
When to Use an AVM
AVMs offer convenience and affordability and are beneficial for many stages within the lifecycle of a mortgage and lending process.
Common uses include:
- Determining a value estimate at the mortgage pre-approval stage.
- To support home equity loans, such as a line of credit or second mortgage.
- During the collateral adjudication stage to help assess collateral risk.
- Post-funding for an ongoing assessment of the overall lending portfolio.
- During the course of servicing a loan, by determining available equity and potential for other products.
When to Use a Property Appraisal
While full-scale property appraisals take more time and are often more expensive than AVMs, there are many cases where they are necessary for the lending process.
The most common use happens during the mortgage approval process to verify the value and property condition. Since an appraisal also includes a review of the interior and exterior of a property, it may affect the valuation. If an AVM raises a flag, that can also be an indication that a property appraisal is needed to investigate further.
A full property appraisal can also be necessary after a completed renovation to determine the quality of the improvements and whether they may affect the value or not.
AVMs and Property Appraisals: The Perfect Pair
Both AVMs and property appraisals have their uses and can — and often do — complement each other throughout the mortgage lifecycle.
Whether you use an AVM, property appraisal, or both, the source you choose is vital.
A property appraiser should be a designated professional with a good reputation, experience, and who follows industry standards. An AVM should be accurate, up-to-date, and reliable. If the data source your AVM of choice uses is inaccurate or incomplete, the AVM will not be as useful.
Purview is committed to keeping our data accurate, up-to-date, and complete. When you receive an AVM from Purview, it is based on a number of factors, including property location, size, comparable sales, current real estate market conditions, and much more.
Expand your lending due diligence process today and gain the power of more. Discover all of Purview’s capabilities by calling 1-855-787-8439 or visiting www.purview.ca.
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