Myth vs. Fact - What an AVM is and What it is Not!

You may have, on occasion, submitted a deal to a lender who has come back and said that they disagree with a property value stated on an application and either reject the deal or request an appraisal. You may or may not know this, but lenders have access to more tools today than ever before and it has become a very common underwriting practice for lenders and insurers to run an AVM to validate the value stated on a mortgage application. 

An AV… what? An AVM (Automated Valuation Model) 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. This means that the program generates the estimated value based on official documented records and statistical modeling. 

It should not be confused with an appraisal as there is no human element. An appraiser does not come to the home, nor do they give credit or deduct credit as it relates to interior and exterior property condition, improvements, etc. It is an automated program that a lender, broker or insurer can use, with a couple of clicks of a mouse, to get a general idea as to whether or not the value stated in mortgage applications are accurate.

So, the output of an AVM is not, by itself, an appraisal. With that said, an AVM's output may become a basis for appraisal, appraisal review, or appraisal consulting opinions and conclusions if there are discrepancies. There are instances where AVMs are used by lenders to replace, supplement and/or audit the traditional appraisal process.

It pays to access the same tools and knowledge that lenders and insurers will. As more tools have become available to lenders, they have also become available to mortgage brokers. Purview is a great example of this. Traditionally many lenders have used Purview For Lenders to generate their AVMs, a broker version of this tool (Purview For Mortgage Brokers) released in recent years that accesses the same information. This means that a broker who generates an AVM, if using the same criteria as the lender, will be able to see what value will appear in the AVM once the lender requests one.

Brokers who have access to these types of tools instantly become more competitive. Problem deals are identified at the application stage, greatly reducing deals that go to lenders and then are rejected or fail to close. Higher closure rates = stronger relationships with lenders and other partners.

For more detailed information about the Automated Valuation Model please click here: http://brokers.purview.ca/automated-valuation-model.php or feel free to contact us at 1.855.787.8439.