Comparing Real Estate Appraisal Tools – AVM vs. Property Appraisal

There are many different real estate tools that lenders leverage when underwriting deals. If you operate an underwriting department of a bank, mortgage insurer, credit union, trust company, finance company, mortgage investment corp., etc., then you know that a large part of the underwriting process deals with validating the value of a property.

Whether your deals are high ratio insured so you count on your insurer to agree with the value of the properties, or you require an appraisal to validate value, the properties being financed are your security and so value must be verified one way or another.

So what tools do your lenders and insurers leverage to validate home value and at what stage in the underwriting process should property value be verified?

1.      Insured Deals - If the deal is insured the insurer will run the property through their automated property valuation tool to validate property value.  In the case of CMHC, they will use Emili which will agree or disagree with the values stated in your underwriter’s applications.

·        What happens if the property doesn’t come in on value? The underwriter’s time is wasted putting the deal together for the insurer as well as the time of the insurer’s underwriter.

 

2.      Appraisals - If you require an appraisal on the deal you may request a drive-by appraisal or a full appraisal.

·        If the drive-by appraisal doesn’t come in on value, this could result in expense to you in both time and dispersement.

·        If the full appraisal doesn’t come in on value, this results in expense to the client and the expense of your underwriter’s time.

3.      Automated Valuation Model (AVM) – Because the above two real estate appraisal tools used to estimate value result in time and expense if the property doesn’t come in on value, many lenders and insurers are now incorporating AVMs into the underwriting process. AVMs are different from appraisals because the value is generated by a computer program that produces an estimate of a property’s value based on an analysis of a wide range of data. When an AVM is generated, like an appraisal, comparable sales will be available to you.

If an AVM is performed before you proceed to submit deals to insurers or appraisers, underwriters can determine if the value is there or not. This saves your underwriter’s time, the insurer’s time and where an appraisal is involved, expense to the client.

Often lenders will have both a property valuation in their files generated through AVM, plus an appraisal or confirmation of value from the insurer.

For more information about real estate appraisal tools that include AVM please visit www.purview.ca/lenders or call 1-855-787-3439.