Many mortgages involve appraisals. When you are considering funding a deal that relies heavily on home equity the appraisal is the one thing that validates that your security is worth what was stated in the mortgage application.
Appraisals can be somewhat subjective because, while there are 2 distinct methodologies (comparable sale method and income method) an appraiser can be swayed by their opinion of property condition. They have the discretion to select which comparable sales are used and sometimes even discretion over what distance and sale time is acceptable in terms of what is used. For example, if you don’t specify distance to the appraiser, your appraisal could include comps outside of the client’s subdivision and variances in value can be vast from one subdivision to another; from one side of a subdivision to another, the quality, types and designs of homes can change, which can impact value.
Many lenders are now adopting AVMs (Automated Valuation Model) into their underwriting process just to double check/validate the value that comes back on an appraisal. Where equity is not as high a concern, many lenders will also couple a drive-by appraisal with their AVM. An AVM, as you may know, is an automated tool that you can use to estimate the value of a property. Different AVM providers obtain their data from different sources and also use different methods in terms of how the value was calculated.
What is true of all AVMs is that they are emotionless. They estimate value based on data and data alone. For this reason often an appraisal coupled with an AVM is your most powerful combination to ensure the value you are lending is certainly within the ballpark of what was initially estimated.
Another way that an AVM can be used with an appraisal to actually reduce the overall cost of appraisal is that you can even look at an AVM before you request the appraisal. This way you can get a ballpark on the value, upsell your deal where there is more value, or go back to the broker or the branch if the value is not there and before you or your client incur the expense of a drive-by or even full blown appraisal.
Once the appraisal is performed you will have the full picture because you will have an automated valuation of the property to compare against the appraisal, thereby giving you more insight into interior/exterior conditioning, home improvements and other things that you would otherwise need to visit the property to learn.
For more about the benefits of coupling an AVM with an appraisal, or to find out more about Automated Valuation Models, please contact Purview For Lenders today by calling 1.855.787.8439.