We thought the topic of the accuracy of an automated valuation model (AVM) was worthy of coverage for this week’s blog as it is a discussion that comes up from time-to-time when agents and brokers are deciding which tools they are going to deploy in the process of underwriting their deals.
Often brokers and agents compare the use of AVMs against the use
of appraisals which is actually like comparing apples and oranges. However, as much as the approach is different, the end result is similar –both try to determine an accurate market value of the property in question - they often complement one another and can
be used to validate the other. In many cases, lenders and brokers alike use an AVM often as a precursor to deciding if ordering an appraisal even makes sense.
AVM Accuracy
• Purview AVM data in Ontario is sourced from The Province of Ontario's Land Registry Information System (POLARIS) which contains the most current and accurate land information available.
• Our AVM produces a statistically derived estimate of value based on analysis of public record data, property location, market conditions and real estate characteristics at a specific point in time.
• Our AVM uses actual sales data in our calculations. We do not used assessed, appraised or list prices which can be over or under-inflated compared to actual market driven sale prices.
• AVMs are objective. AVMs are quite accurate as the data doesn’t lie – data is data and sales are sales. Appraisals can actually vary in accuracy because they depend on a human’s opinion/feeling/view on what they see. One appraiser may view condition differently from another.
• AVM reports are generated in real time. Property information within the report is available within 10 days of submission to the Land Registry Office.
The role of valuations in the lending process
• Valuations play a significant role in the lending process by assisting financial institutions throughout the life of a mortgage and have been implemented across major lending institutions.
• Based on the accuracy of AVMs, there is widespread usage amongst mortgage insurance providers to evaluate their ability to insure new deals.
Lenders have, for many years, relied on AVMs as a front line component of the underwriting process. Lenders save considerably by determining if a property value is in range before wasting underwriting resources and submitting deals to insurers who end up disagreeing with value. This is one reason a deal may be submitted to a lender and come back when there is a disagreement over value – even before the deal is submitted to the insurer or before an appraisal is ordered - because when you submit your deal many lenders will run an automated valuation model to validate the value stated in your application.
Depending on the AVM provider, the data used will come from different sources. We consider our product, Purview For Mortgage Brokers, which is a web based application using the same tools that many lenders who use Purview For Lenders deploy, to be premium.
For more about Purview’s AVM and where our information comes from, please visit www.purviewforbrokers.ca today.
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