Online Property Valuation – Automated Property Valuation (AVM) vs. Emili

There are so many tools available to lenders, underwriters and insurers these days, and it often seems as though they all do the same thing, especially when it comes to validating property value. There are so many different ways that property value can be verified: through a drive-by appraisal, through a full appraisal, through an AVM (automated property valuation) and more.

Some lenders rely primarily on whether or not their insurer concurs with the value of the property. This is because, in the case of CMHC, they have a proprietary approval system, Emili.

Emili is used to validate homeowner information, pre-qualify a borrower for the purchase or refinance of a property and evaluate risk. Emili evaluates both the borrower’s and the property’s information. Emili will agree or disagree with the value of a property stated on a mortgage application. The issue with this is that relying on the insurer running the property through their property valuation tool only tells you if they agree or disagree with the value.

Lenders often confuse this and think that Emili is simply CMHC’s way to appraise the value of a property, when really it is their entire approval system, and concurring with property value is merely one component.

An automated valuation model AVM is a computer program that provides a real estate market analysis and estimate of a property’s value. When you generate your own automated property valuation the value is based on, among other things, comparable sales in a given neighbourhood. It also provides an actual value.

Using automated property valuation, you are empowered because you can quickly identify deals where the value is less than stated and not waste your time or the time of your partners. On the flipside, you may identify properties where there is significantly more equity and package the deal for the insurer with an upsell such as a home equity line of credit. The more you know about the applications that are being underwritten by your organization, the more opportunity you have to ensure that good deals get funded, bad deals do not, and deals that can be saved get saved.

If you would like more information about how to obtain automated property valuations please visit www.purview.ca/lenders. If you are a Purview For Lenders client and would like more information about how to generate property valuations please click here to watch a brief video.

What to Look for in a Property Valuation Software

It is a known fact that the better you underwrite your deals the less likely it is that problems will arise in the future. Deals go bad for so many reasons: the financial situation of the client changes and the client defaults, the client was a high risk deal to begin with, mortgage fraud and more…this can cost you big.

In this day and age technology has brought us so many resources that make knowing more about applicants easier. When underwriting a deal your underwriters likely review the applicant’s credit, validate their documentation and may even ‘Google’ applicants and check them out on social media - all in an effort to execute a good lending decision.

One tool that every lender’s underwriters should have in their toolkit is a property valuation solution. Sure, when a deal is submitted through CMHC or Genworth or Canada Guarantee, these organizations will utilize the application and determine if they will grant the high ratio default insurance. However, there are many benefits to learning as much as you can about a property before you even submit the deal to an insurer.

You may have already started investigating property valuation solutions for the reasons we are about to list below. Maximum benefits will depend on the property valuation solution you choose. Here is our short list of things that you should look for when evaluating a vendor for property valuation solutions.

Your property ownership solution should provide the ability for you to:

1.      Validate property ownership – By the time a deal gets to the point of closing your underwriter has already spent considerable time both underwriting and dealing with the client and broker. Once a deal is instructed, likely an insurer and a real estate lawyer have invested time in the deal as well. Having the ability to validate property ownership information will enable your underwriter to ensure that there are no surprises on closing.

2.      View the property being financed – Viewing the property that is being financed enables you to uncover issues that could change your lending decision, for example, rental properties, properties under construction, etc. 

3.      Validate property value – Validating property value in advance using your property valuation solution reduces the time your underwriters spend working on deals where the value is not there. The number of applications that go to insurers like CMHC and are inevitably declined because of value will be reduced, increasing closure rates with the insurers.

4.      Identify fraudulent deals – Your property valuation solution should provide tools that help you identify fraudulent deals.

5.      Generate reports that you can share internally and with broker partners and clients.

The more capabilities you provide to your underwriting team, the lower the cost per deal. Your team will be able to process more deals, faster, and your partners will appreciate that you have the ability to better filter your deals and make sure that you are only financing deals that represent reasonable risk to you. This is why it is vital when choosing property valuation solution to do your homework and ensure that you choose an application that provides you with maximum capabilities.

For more information about property valuation solution options please visit www.purview.ca/lenders or call 1-855-787-3439. Interested in knowing more about Purview For Lenders, click here to watch a brief overview video about our application that includesautomated property valuation.

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.