While not as commonly used as before the housing crisis, automated valuation models are still used in some mortgage originations.
AVMs are preferable due to their low costs and speed, however they don’t work for every situation, experts explain.
“The speed and cost are by far the biggest benefit to AVMs,” Jorge Ponce, FirstClose director of business development, told HousingWire. “Everyone wants to cut that turn time down.”
Ponce explained that while an AVM costs $10 to $20, a full appraisal costs at from $300 to $400 on average. AVMs are also done in real time, as opposed to the 12 day turn time for full appraisers.
LRES Chief Strategy Officer Mark Johnson explained to HousingWire that some lenders use AVMs in addition to full appraisals to validate them.
“The AVM is more designed to value an area as a whole off of validated data, while the appraisal is personal to that property,” USRES Chief Appraiser George Paquette said. “To go the other way around to use an appraisal to validate an AVM I think would be a little bit misleading because you’re not honing down on a certain property and the attributes that it has, the floorplan, views, location or things like that, while an AVM is just aggregating the data for the area.”
But lenders don’t have to choose between one or the other, and many use a combination of both.
“When we’re speaking about AVMs, the questions and some of our answers end up sounding like AVM or appraiser, and I don’t think the two are necessarily mutually exclusive,” Johnson said.
Paquette further explained the appraisal products don’t have to be one or the other, and that more of a blend of products is needed.
“It seems a little bit crazy to me that you would have two sides of the spectrum like that where you have an AVM and then you have a full appraisal and those are the only two options,” Paquette said. “I feel like that’s like walking into a restaurant and you have a hot dog and a filet mignon and you have to choose one of the two.”
“There really should be products in the middle to satisfy the buyer and the loan type and the risk level facilitated with it instead of making someone choose,” he said. “I think this is all reactionary to some of the turn times and the fees in these areas which could have been satisfied with a hybrid product or a more condensed product for the low-risk loans. This would ease up the work for the appraisers and let them complete more appraisals and satisfy the loan as well.”