Multiple Listings Service – The Best Tool for Lenders/Investors to Validate Value?

The multiple listings service (MLS), for a long time, has been what many real estate professionals and lenders alike have used to pull sales comps when trying to establish the list value of a property. Comparably, many appraisers have also relied up upon tools like the multiple listings service and GeoWarehouse to pull sales comparables.

But do mere sales comparables go far enough in today’s lending environment?

In the past 10-15 years, this practice has changed significantly. The internet and technological advances have brought us other tools such as Automated Valuation Models (AVM), and have provided a more comprehensive way to crunch data in order to generate property value.

Automated Valuation Models generate a value based on all comparable sales in an area entirely, not just 2 or 3 that appeal - what often occurs when a human is browsing their local MLS. 

The multiple listings service is a database that stores information around sales and listings, while AVMs have their own respective data sources and methods for analyzing the data. The 3 most common types of AVMs draw their data from distinctive sources or using different approaches.

1.    The House Price Index Model – This model looks at multiple repeat sales which then result in house price indices in different geographical locations. This is then applied to the past transaction price to generate a current valuation.

2.    The Tax Assessed Value Model – This uses data from municipalities that store property value information in connection with tax assessments. In this model past values and subsequent values are used to create a ratio which is often relied upon when updated the tax assessed values of properties.

3.    The Hedonic Model – This model uses price information about all sales related to comparable/similar properties in an area using property specific attributes. The value is then generated using a radius search pattern and other logical search parameters.

Some tools only produce AVMs, while other tools produce AVMs within a report containing other property data.

·        The old fashioned way of investing in real estate: See a property, ask to see multiple listings comps, if deciding to move forward – order an appraisal.

·        The new way of investing in real estate: See a property, generate an AVM on your tablet or at the office, if moving forward you may or may not request an appraisal to accompany your AVM depending on equity.

Appraisals are not AVMs and AVMs are not appraisals. AVMs don’t take into consideration the condition of a property or things that real-time boots on the ground can. Lenders who want to dig deeper use their AVM as a first search measure and then couple it with an appraisal to get a more complete and accurate picture.

Sound complicated? Not so much. In fact, the big banks have been using AVMs for the past 10-15 years. Technology has made them so much more accessible that many smaller lenders, such as credit unions, finance companies and even individual private lenders, have integrated the use of AVMs into their workflows.

Get more information on why an AVM is the new way of doing things by visiting https://lenders.purview.ca/property-valuation.php.