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Is an AVM Meant to Replace a Property Appraisal?
Automated Valuation Models (AVMs) and property appraisals share many characteristics, but they are not the same.
For one thing, AVMs are not intended to be a property appraisal and are even used at different stages in the lending process. For instance, many lenders use AVMs at the mortgage application stage whereas a full appraisal is often ordered later in the process.
Looking at the key differences can help us understand why these two very valuable resources do not actually compete with each other.
What is an AVM?
- An automated tool.
- Available online and on-demand.
- Provides insights about the property, including validating ownership, value, and sales history.
- Looks at comparable sales data and forms an estimate on that basis.
What is a property appraisal?
- In-person assessment of a property that must be planned and booked ahead of time in most cases.
- An appraiser will actually go to the property in question and perform an assessment – sometimes of the outside, and sometimes including the interior of the dwelling.
- The appraiser will choose the sales comparables that they think are most relevant and factor in the condition and their opinion of the property into the estimate.
AVMs are a fraction of the price of appraisals – because they are something very different. The AVM is generated on your computer and is available almost instantly. A property appraisal, on the other hand, involves a person who has to prepare manually a report for you.
Many lenders will:
- Request the AVM at the application stage to validate the legal homeowners and property value. Some AVMs, like Purview, also tell you registered encumbrances, which can help you identify if there are undisclosed mortgages or registered mortgages that look significantly different than what the client indicated in the application. The AVM will be obtained at the same time as the credit report and other initial information that lenders assess when forming the initial approval to extend credit.
- Depending on equity position and the client application, the lender may proceed to request a full appraisal — or not. In some cases — for example on insured deals, if CMHC’s Emilii concurs with the lender’s AVM and they have approved the value for insurance – the deal may proceed without an appraisal.
- Many lenders who use AVMs in their practices also repurpose use of the tools in their collection and enforcements.
If anything, appraisals and AVMs actually work hand-in-hand. So, while an AVM does not often replace a property appraisal, they can nonetheless be a valuable tool for mortgage lenders to use during the application process.
Purview’s AVMs use up-to-date data derived from the Province of Ontario Land Registration Information System (POLARIS). Find out how to access a Purview AVM today. Call 1-855-787-8439 or visit www.purview.ca.« Back to Blog