Property Biz Magazine - Interview with Teranet President, Value Added Commercial Solutions, Lawrence Franco

 

Wondering what’s up at Teranet? This article "Major growth insight for Toronto-based Teranet" will give you some great insight. In the article, Teranet President, Value Added Commercial Solutions, Lawrence Franco discusses some of the latest and greatest innovations at Teranet Enterprises Inc.

What is an AVM or Automated Valuation Model?

Despite the fact that so many lenders now use them, one very common question is what is an AVM or automated valuation model?

An automated valuation model is an algorithm that analyses data and generates an estimated value on a particular property.

This value is derived from specific attributes of a property as well as actual sales information, all of which is stored in a large database. Some AVMs derive their information from 3^rd party databases such as the Province of Ontario Land Registry System, Google and other sources. The sources of the data will determine how accurate the AVM is. An AVM will generally compare a subject property to the property attributes and sales data within the database or 3^rd party databases and produce an estimated value.

Many lenders are now using AVMs at the initial stages of the underwriting process because they represent substantial time savings and are very convenient - an AVM can be generated instantly online.

Lenders and insurers are incorporating AVMs into many facets of their organizations too. Here are some other examples of how lenders are using AVMs:

·        Pre funding

o   To validate property values

o   To perform fraud checks and mitigate fraud

·        Post funding

o   To evaluate their lending portfolios

o   In the event of a default, to determine a sales price

o   To identify upsell opportunities

·        Lenders

o   Approval of high ratio mortgages

An AVM is not an appraisal. The question ‘what is an automated valuation model’ often comes up because they can sometimes be confused with an appraisal. In fact, an AVM does not replace an appraisal – they work hand-in-hand. Leveraging AVMs will reduce the number of appraisals you need because you will be able to identify deals that are worth far less than what’s stated on the application before you get to the stage of ordering an appraisal.

If you are considering adding the capability for your underwriters to be able to generate AVMs, it is important to evaluate vendors carefully. Where the data comes from and the accuracy of the information will play a huge role in how accurate your AVMs are. Furthermore, many AVM providers provide applications that include AVM as well as a host of other underwriting tools, information and data.

For more information about automated valuation models please visit www.purview.ca/lenders or call 1-855-787-8439.

Accessing Sales History Data Really Gives You the Goods!

Real estate sales professionals: your underwriters either serve your branches or your agents/brokers. They submit applications to you and they want their deals turned around quickly. The borrower may have great credit and income and ‘as a borrower’ perhaps qualifies for the financing, or the borrower could be self-employed or not have great credit history – in either case, the next step is to assess the security (the property). 

This can be particularly challenging in neighbourhoods in urban centres like Toronto where the real estate market has continued to climb even through turbulence in the economy, or other major city centres in provinces like Alberta where property values have been up and down.

It can be hard to know what a property is actually worth; in some areas, what a person paid for a home 5 years ago could be fairly similar to its current value. In other areas, the value could have increased by up to 30-40%.

Before even getting to this stage or generating an automated property valuation, submitting the deal to the insurer or ordering an appraisal, there are measures lenders can take to get a sense of the current market value of the properties they are considering financing.

One measure is reviewing sales history information.

·        Reviewing sales history information on the subject property enables you to validate when the property was purchased and the purchase price. If the property was purchased recently this can highlight how wide the gap is between what the homeowner paid for the house and what they think it is worth now.

·        Reviewing sales history information on other comparable properties in the neighbourhood will reveal what comparable properties in the area are selling for.

Now, if it happened that when looking at the sales history information a property was purchased within the past 5 years and there is a substantial gap between the purchase price and what the stated value is now, comparable sales in the area may explain this as the property could be located in an area with a hot real estate market.

If both the sales history information and comparable sales history information draw the same conclusion and it seems that the property is worth much less, there may no longer be a deal and the lender can save the time generating an automated property valuation, submitting the deal to the insurer, ordering an appraisal, etc. In addition, if the application was referred by a broker/partner they can let them know that the value is not there and give them the option to order an appraisal. This strengthens these relationships.

Ensuring that your underwriting team has access to accurate sales history data makes it easier for them to make more effective underwriting decisions and be more efficient.

For more information about how to access sales history data on a particular property or properties in a particular area please visit www.purview.ca/lender or call 1-855-787-8439.

Mitigate Time Wasted with Automated Property Valuation (Automated Valuation Model/AVM)

More and more lenders are incorporating an automated valuation model (AVM) into their underwriting processes. Using an automated valuation model, you can generate property valuations - saving an immense amount of time not only for you but also for your partners and suppliers.

Different lenders finance deals based on different criteria. If you are a major financial institution like a bank, credit union, trust or finance company, your mortgages are likely high ratio mortgages covered by one of the mortgage insurers. This means that outside of your approval criteria you must meet the lending criteria of the insurer. If you are a private lender, operate a mortgage investment corporation or perhaps you are a major financial institution and want to look at financing riskier deals – a large part of your approval criteria is going to come down to the equity/security in the property.

What is true for all lenders is that if a property is the security on the loan, the value of the property/security will have to be determined.

This is where an automated property valuation comes in. Sometimes it can get confusing figuring out which tool to use when assessing the value of a property. Generally the tool you use will depend on the type of deal you are working on.

Insured Deals

More and more lenders are now taking their own steps to order drive-by appraisals, do their own research on properties, generate their own automated property valuation, etc. in an effort to further identify problem deals or deals where fraud is prevalent.

Uninsured Deals

When a deal is uninsured, generally speaking the lender will put almost all of their faith in the property appraisal when it comes to the property value that they use when making a lending decision. Sometimes the lender pays for the appraisal, but more often than not the borrower or sometimes the mortgage broker/agent pays. The cost and time associated with underwriting a deal, ordering and then waiting for an appraisal only to find out that the value of a property is less than anticipated is disappointing and is a major cause of deals that end up having to be canceled.

So it really is a case of either or - either your deal is insured, or it is not and you require an appraisal. What is true for both scenarios is that with some extra research at the front end you can get an idea of what a property is worth and avoid the time spent underwriting and then sending the deal out to various 3^rd parties to complete the mortgage financing process.

You can achieve this using an automated property valuation. An AVM can be of use on a deal whether it is insured or requires an appraisal. You see, leveraging an AVM can help you determine if a property value is accurate at the application stage. If it is not – you don’t waste any more time. If it is, you are good to go. If it is greater, you are in a position to upsell the client.

For more information about an automated property valuation or automated valuation model please visit www.puview.ca/lenders or call 1-855-787-8439.

Scheduled Maintenance for Purview

Please be advised that Purview will be unavailable on Friday July 11th at 8:00pm EST until Saturday July 12th at 1:00am EST for scheduled maintenance.  Please ensure you run any critical Purview reports in advance of this maintenance shut down. 

We apologize for any inconvenience this may cause.

4 Pics – Guess the Words

We thought we would have some fun and share a game – here are 4 pictures, can you guess the words?

__ __ __ __ __ __ __ __          __ __ __ __ __

 

Hints: the answer is 2 words!