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Either/Or: Automated Valuation Model vs. Sales Comparables – Digging Deeper on a Deal

pfl2Alright, so this is a great question – which is better or is one just as good as the other: Automated Valuation Model (AVM) or just using sales comps?

Running searches and hand picking sales comparables is definitely one way to estimate the value of a home but it is also time consuming and reliant on the human who is choosing comparables to choose the best in correlation with the property being considered.

Many residential appraisals are derived using the Sales Comparison Approach which generally includes referencing up to three comparable sales.

Whether you are in high volume underwriting or are a private lender administering your own underwriting, both of the above are cost and resource intensive. This is not to say that looking at comparable sales data isn’t important – however technology has made it far easier to access this data to be able to streamline where you invest you resources.

The automated valuation model is an excellent example of this.

Most AVMs are available online and are either fee- or subscription-based. An AVM is an automated program that uses mathematical calculations to estimate the value of residential properties.

Different AVM providers get their data from different sources. In the case of Purview, the AVM will result in a value based on the analysis of public record data, location, and market conditions at a specific date. When analysing the property itself, it will look at location, size and other key features. Public record data in Ontario comes directly from the Ontario Land Registry database which is the most current and accurate source for data in the province.

Running an AVM at the application stage will help you quickly validate value to determine if you want to go further and bring the deal forward to the insurer or order an appraisal. Perhaps there is enough equity that the AVM on its own is sufficient for you to fund.

Like past blogs we have written comparing AVMs to appraisals, this is not really a case of either/or but rather is about deploying the right resources according to the deal you have on the table. Purview For Lenders for example has an AVM component and also gives you sales comparables. But again, leveraging technology so the program generates the sales comps based on the property attributes is a great idea. Why? Because when it comes to using an automated valuation model or sales comps it’s not quite black and white because you can really benefit from the use of both.

Want to get started? Contact Purview For Lenders today at 1.855.787.8439.

 

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