It’s not surprising that automated valuation models (AVMs) have cropped up seemingly everywhere. AVMs are extremely fast, and their presentation is impressive, boasting colorful charts, graphs, maps and supporting statistics. They’re also cost effective if you need to make a fast business decision, typically ranging from $5 to $45. Of course, the downside to using a single automated valuation model is getting your head around exactly how the estimate was created. To do that, you’ll need to speak to the AVM’s creator — a bit implausible if you’re pressed for time. The other big drawback to AVMs is the potential risk factors they bring to the valuation. They depend heavily on the patchwork quilt of housing in many areas, erratic markets and the methodology of keeping and recording data — all of which are subject to potential errors.
The work and worry of multiple AVMs
Upon realizing the danger of relying on a single automated valuation model, many lenders have resorted to cautiously implementing multiple AVMs. The trouble here is that each AVM is ball-and-chained by its unique fulfillment platform and proprietary confidence score. As a busy lender, you have to ask yourself: Do I really have the time and money to compare valuations from different vendors and pick out the most accurate valuation for a property or area? The smart move would be to find a reliable resource that can do this for you — a tool that can organize AVMs based on accuracy, coverage and cost.
The smart move
Whether you’re underwriting home equity lines of credit (HELOC) or performing other collateral valuation-related activities, what you look for in an automated valuation model is speed and economy. But an AVM’s hit rate and accuracy can vary. Fortunately, there are tools that can improve internal workflows and help to ensure conformity with today’s federal collateral valuation guidelines. One such tool is Equifax’s Collateral Value Connector™, which organizes AVMs in a cascade arrangement, ranked by accuracy. Enter a street address and accompanying ZIP code, and the connector selects the most appropriate AVM from top-tier AVMs in seconds. If an AVM is unavailable, the program cascades to the next best AVM. Both accuracy and reliability are then gauged by an independent, third-party vendor using extensive testing criteria, such as geography, confidence scores and accuracy.
Reports of abuses and errors have led to new requirements intended to provide greater transparency in the mortgage industry. In order to continue to participate in the real estate market, you’ll have to demonstrate that the automated valuation model you intend to utilize has been validated and accurate. Relying on any single AVM can potentially expose you to unnecessary business and regulatory risks, and trying to deal with multiple AVMs can be costly and time consuming. The solution is to use accuracy-based aggregation tools that unite the benefits of using an AVM with the reliability and confidence of multiple AVMs tailored to your specific requirements.
Choosing the right automated valuation model can be complicated. Today’s new breed of cascading tools can help you reduce both operational costs and risk by fully harnessing their power.
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