When you are working on a deal, the more you learn at the
interview stage the better equipped you will be to determine if you have a
viable deal from the very beginning. FIs have gotten far stricter about closure
rates so it is important that applications you submit are carefully populated
and reviewed so that you can uncover potential issues before you submit your
deal to the bank.
What are the most common things that cause deals to get
declined by the lender/insurer?
o
Problem credit
o
Problem with income – not enough or can’t be
proven
o
Problem value – the value of the property is less than the
borrower stated on the application
This blog will deal with how you can uncover if the property
value is actually in line with what the homeowner has submitted.
Just as your financial institution doesn’t like you to have
many applications that don’t close, the insurer (when used) doesn’t want to
have financial institutions with many applications that don’t close – so all
parties involved in a mortgage transaction have begun taking extra measures to
ensure that the information on the mortgage application is accurate.
You may ask your client when they purchased their home and
what they paid for it to try to identify the current value, but in today’s
market, how can you really know? Some neighbourhoods in major city centres like
Toronto have seen exponential increases in property values over the past few
years.
Many financial institutions and insurers now use automated
valuation models (AVMs) to validate the property value on an application.
What is an AVM? An automated valuation model (AVM) is a
mathematically based computer program that produces an estimate of the market
value of a residential property based on an analysis of public record data,
property location, market conditions and real estate characteristics at a
specified date.
Simply speaking, the program will analyze comparable sales
in the area and generate an estimated property value. Why does this matter to
you? Just like many of the financial institutions and insurers look at an AVM to
evaluate and underwrite your deal, you can look at an AVM before you submit the
deal to your financial institution.
Accessing the same technology and information as your
lenders makes you more prepared. Reviewing an AVM at the point of application
will save you exponentially both in time and expense. It will also lead to
increased closure rates because you won’t waste your lender’s time with
applications where there is a problem with the value.
Your AVM may also reveal that there is more value than originally
thought, which may lead to more opportunities. Perhaps you can fold your client’s
debt into the mortgage and upsell them on a larger mortgage, or perhaps you can
get their mortgage rate down because the additional equity means more security
for the lender – the sky is the limit!
Whether your deal is insured or if you will be ordering an
appraisal on your deal, it is important that you look at the property’s AVM –
just as your lender and insurer will likely be doing.
For more information on automated valuation models please
visit www.purview.ca/brokers or
call 1-855-8787-8439.
