|
|
|
|
|
What is AVM? AVM stands for Automated Valuation Model and is typically referred to as a report that estimates the value of a property based on historical data of properties and projection of property values. In layman term, AVM is an automated appraisal which takes seconds to generate a value estimates versus a manual appraisal which takes days to complete. Similar to appraisal, AVM is more or less is a subjective measure relative to the data and methodology that were used. This means that the estimated value and confidence score may vary among the different AVMs and does not mean that one AVM is more valid than the others in all cases. The underlying assumption in using AVM is that lenders accept AVMs or that they can be convinced that AVMs has reached a maturity level where the valuations are accurate. AVMs are gauged primarily on their accuracy (confidence score) and hit rate (coverage). Confidence score is evaluated with respect to trustworthy benchmarks, such as an arms-length sales prices and conformity of the property. A low confidence score usually means the subject property was in a non-conforming area or exhibited physical characteristics that were not found in many of the neighborhood sales. Low confidence scores may be found in areas where property sales data is sparse and sales exhibit a somewhat larger range of values. The hit rate is the ratio of AVM values delivered for valid property addresses submitted. How is AVM Used? AVM can be used in a variety of markets for various purposes, including: 1. Automated underwriting and origination 2. Prequalify 3. Collateral scoring 4. Appraisal QC 5. Loss mitigation 6. Portfolio valuations 7. Marketing programs 8. Evaluating insurance needs As an example, an appraiser may use an AVM to make sure that his appraised value for a property is reasonable. A lender may use an AVM to make sure that the stated value of the property that comes from the broker/consumer/appraiser is accurate, just as the lender would pull its own credit report on the consumer to make sure that the broker's credit report is not fraudulent. AVM are currently targeted mainly at large lenders who are the primary driver for the acceptance of AVM. This document focuses primarily on how AVM can be sold to mortgage originators and smaller lenders. The selling point is as described below. Depending on the lenders underwriting the loan, certain AVM can sometime be used to replace an appraisal on a loan because it is cheaper and reduces the amount of time needed to close from days to seconds. AVM are typically accepted by lenders on refinances or HELOC where there is less risk involved. As shown by Figure 1, an appraisal is replaced by a reputable AVM in Step 2 of the process to save the consumer money and allow the lender to close the loan quicker. For examples, one lender may accept an AVM in place of an appraisal if the credit score is higher than 720, whereas, another lender can be convinced to used a merged AVM report showing three estimates, which is still cheaper than one appraisal that is subjected to human errors. In the event that the AVM does not support the loan amount that the consumer is requesting, the lender can then choose to order a full appraisal for a more thorough investigation of the property value. What is the value and how will AVM help me? The underlying value of AVM is to reduce costs in term of dollar value as well as time. A typical appraisal cost a couple hundred dollars, where as the cost of an AVM is 10 times cheaper. In term of time, an appraisal may take days to be completed. And during the long wait, the loan is at risk to factors that could prevent the loan from closing such as a change in the rate. An AVM on the other hand, takes seconds to be completed, reducing the amount of time to close the loan, reducing opportunity costs! |
|
"Customer Service is our Business" |
