What is an Automated Valuation Model?

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.