Really Knowing the Ontario Housing Market: Automated Valuation Models

Whether you are an executive within a financial institution or a frontline underwriter, it pays to have a good grip on what’s happening in the housing market. Checking Canadian housing market numbers nationally is simple enough leveraging tools like the Teranet-National Bank House Price Index. Really knowing the housing market means understanding what’s happening at both the macro and micro levels.

Drilling down at the community and even individual property level can be achieved most simply through leveraging automated valuation models (AVMs).

AVMs help lenders really understand the housing market and are most commonly used to:

·      Underwriting – to validate property value

·      Collateral adjudication – to check for fraud and assess collateral risk

·      Post funding – continually evaluate overall lending portfolio

·      Servicing – identify upsell and other opportunities with the client

Automated valuation models are automated mathematical calculations that produce an estimated value of a property. The same calculations can be used to assess an area. There are different types of AVMs.

The three most common types of AVM include:

·      Price Indices: Multiple repeat sales are used to create and establish house price indices for a specific geographic area. This index is then applied to a past transaction price or valuation of the subject property to provide a current valuation.

·      Hedonic: Largely based on statistical models using some form of linear regression. Property attributes such as location, property size, and nature of improvements are data requirements of this model type. Essentially, the attributes of a subject property are compared with other comparable properties using a radius search pattern or other logical search parameters, over a pre-determined time period.

·      Tax Assessed Value Model: The current market value is estimated by updating the valuation assessed for tax purposes at a past date. The statistical relationship between past assessed values and subsequent price data is measured to create a ratio which is then applied to update the assessed values.

Each type of AVM mentioned above uses a different model and obtains their data from different places. MPAC for example obtains much of their data from tax assessment records. The Purview AVM product offered by Teranet obtains their data (in Ontario) from The Province of Ontario's Land Registry Information System (POLARIS) which contains both current and accurate land information

The use of AVMs has spread, and now it is being used inside larger financial institutions and smaller private lenders alike.

Using automated valuation models will ensure that, if you need information about a property or area, the information is available to you at the click of a mouse, making you more efficient. Getting the information you need, quickly, helps to ensure better time management and a stronger bottom line.

For more about the value of automated valuation models or their various uses, please contact Teranet today by calling 1.855.787.8439.