Mortgage industry events, interest rate announcements, Canadian housing market index price numbers and other housing information, Market Insights reports, and much, much more. Maintaining our commitment to giving you MORE!

Getting Back to Basics – What is an Automated Valuation Model?

We use the term Automated Valuation Models (or AVMs) in our business a lot, and they are likely familiar to most who work in the industry.

However, even if you think you know what AVMs are, are you sure that you are leveraging them to their full capacity?

We are getting back to basics in this blog to break down exactly what an AVM is, when it is used in the mortgage application process, the accuracy, types of models, and more.

What is an AVM?

 An AVM is a mathematically based computer program, which produces a residential property value estimate based on analysis of several factors:

  • Public record data
  • Property location
  • Market conditions
  • Real estate characteristics at a specified date

What do you need to access an AVM?

Most AVM providers require the street address of the subject property. The AVM system will then identify the property, check its location, size, and other key features, and search its database for the best set of comparables to generate a value.

Different types of AVMs

There are different types of automated valuation models you might encounter. Some may be based on one model, or the combination of multiple models. The most common models include:

  • Price Indices. These AVMs use multiple repeat sales to create and establish house price indices for specific geographic areas. The index is then applied to a past transaction price or valuation of the subject property to provide a current valuation.
  • These AVMs are largely based on statistical models using some form of linear regression. Data requirements include property attributes such as location, size, and nature of improvements. This is then compared with other comparable properties using logical search parameters over a pre-determined time period.
  • Tax-Assessed Value Model. These AVMs are created by estimated the valuation based on tax assessments. The statistical relationship between past assessed tax values and subsequent price data is measured to create a ration, which is then applied to update the assessed values.

The quality of the AVM depends on the data it uses. Make sure you ask where the data is sourced from and evaluate whether it meets your needs. For more about data sources in AVMs, see our recent blog on the topic: https://www.purview.ca/accurate-avm-property-data/

Why use an AVM?

 There are many benefits to using an AVM. Some of the main advantages include:

  • Cost-savings. Compared to full property appraisals, AVMs are significantly less expensive.
  • Since AVMs are generated instantly in real time, you can access them when you need them, thus speeding up the mortgage application process.
  • Flag issues sooner. While there are some inspection flags that cannot be found without a full property appraisal, an AVM can help find issues early in the process and determine the extent of further due diligence.
  • AVMs are accessible online, displayed quickly, and often available 24 hours a day.
  • AVMs are not influenced by human bias or emotions.

How to make the most of an AVM

AVMs can complement your mortgage business in many ways. Whether you use them in the mortgage pre-approval process, to verify home equity, to mitigate risk, or another purpose, they are versatile, convenient, and accessible technology that should be in any mortgage professional’s toolbox.

Have further questions about AVMs or want to access one of your own? Get in contact today. Our Purview team is happy to talk AVMs, property data, and beyond. Call 1-855-787-8439 or visit www.purview.ca.

Our portfolio of solutions for the financial industry is growing. Stay tuned for more information.

« Back to Blog