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.