AVM Utilization Continues to Expand

AVMs (automated valuation models) offer an inexpensive, immediate and increasingly accurate real estate valuation option for all types of users, so it’s no wonder they are more popular than ever. However, there is a diverse offering of AVMs available, so understanding a few basic fundamentals about AVMs will aid your decision in deciding what type of AVM to use and when to use it.

Most AVMs calculate the value of a property by using comparables, which are recent real estate sales and sometimes nearby listings of homes for sale. This process is filled with variables, such as the databases that are used for the comparables, the type of statistical modeling that is used to compare the comparables to the subject property or to calculate a value based on a past sale, and the geographic area that the comparables are chosen from.

Over the last decade, Fannie Mae and Freddie Mac and many other private firms have collected significant amounts of data from appraisals, MLS data and from historical loan files. These data sources offer a vast array of information for AVMs to use in calculating a value.

AVM providers have multiple approaches to choosing comparables. We have all heard that location is one of the most important attributes in real estate value and in order to identify the most similar properties, defining the boundaries of the subject property’s neighborhood is key. Some providers use aerial recognition analytics, which can help define nearby features, both positive and negative, such as golf courses, parks, railroad lines and highways. Once the search area is defined, the AVM chooses the most similar comparables based on the property’s physical characteristics, such as size, age square footage and room count.

The final step in the automated valuation process is the actual value calculation. This is done using either a single type of statistical modeling or multiple types of statistical modeling to arrive at a value or range of value. Some AVM providers use the results from multiple AVM algorithms, then statistically reconcile the AVM values for a final value conclusion for the subject property.

It’s important to remember that an AVM is different from an appraisal. AVMs calculate a property’s value based on statistical modeling. In most cases, they include no information about the property’s actual condition. Statistical analysis will validate if a particular AVM has a consistent accuracy variance for a certain type of property in a certain area, but that is based on a large sample of valuations. The AVM user can never be sure if a property valuation falls within an accuracy variance range.

If an exact value is needed, such as in the case of a high-risk loan, a high LTV loan, or if the collateral value is questionable, an appraisal is a better choice. In lower risk situations, like low loan to value ranges, an AVM can be a dependable tool. AVMs are also used for quality control, portfolio management and investing where large groups of properties are being evaluated or where the AVM is providing supplemental information for appraisal quality control audits.

Appraisal reviews and quality control processes can include AVMs and comparable data generated by AVMs for review appraisers to use. Hybrid valuations, in which an appraiser performs only part of the valuation process are also increasing in use. While the appraiser’s role is still critical in real estate valuations, the availability of real estate data and new technologies in using the data are improving the tools available to the appraiser and enhancing the way an appraiser values real estate.

AVMs across the industry have one common goal: accuracy. AVM providers are constantly developing improvements to make their products more accurate. At Covius, we work closely with multiple AVM providers to constantly assess quality, service and delivery capabilities to provide the best available product to best meet the needs of our client’s.

In fact, Covius offers a full range of real estate valuation solutions ranging from AVMs to full appraisals. We can provide them as standalone products, in support of bulk analysis projects or integrate them within a process flow inclusive of document management, title, curative, escrow and closing processes. Let Covius help you improve, streamline and automate your valuation processing. Please call or email us today so we can discuss your needs and create a solution targeted to meet the needs of your business.