AVM’s vs. Appraisals

Automated valuation models or AVM’s are value indications using mathematic modeling in combination with a database. AVM’s are a quick, easy, and many times free way for lenders and the general public to obtain value conclusions on residential properties. Bank of America offers consumers free online AVM’s and other websites like Zillow.com also offer free online value estimates. AVM’s conducted by lenders are many times used for home equity financing, refinancing preapproval, mortgage originations of less than $250,000, and even loan modifications. Some of the pitfalls of these types of limited scope value conclusions include the lack of consideration of:
• Location
• Quality of Construction
• Condition
• View
• Active listings
All homes are not created equal and using a broad brush or a cookie cutter model can lead to value indications that are simply inaccurate. With inflated real estate appraisals taking part of the blame for the housing crisis, the recent use of AVM’s by lenders to cut or decrease the value of a property is disturbing. Lawsuits against the Citibank, Wells Fargo, and Chase for employing these practices with AVM’s indicate the need for mortgage professionals to take a second look at qualified appraisal professionals for reliable value conclusions. AVM’s can’t conduct a full inspection of the property, they can’t ask a homeowner a question about recent upgrades or updates, and they can’t call a realtor to provide additional details about a comparable sale or active listing. Qualified appraisers are the best source for valuation products, especially going forward after the recent crisis.