1SD Newsletter: April 2004
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AVM Fact Sheet

Automated Valuation Methods
AVM’s – Quick, Reliable Property Valuations

SUMMARY
Automated Valuation Models (or, AVM’s) emerged in the early 1990s. Steadily improving technology, more accurate databases and growing concern for the integrity of property valuations are combining to push AVM’s into mainstream usage.

Today’s AVMs are to Property Valuations what Fico Scores are to personal credit – reliable and inexpensive determinations that speed-up the mortgage process. The key to their the unbiased, consistent application objective calculations to every property.

Increasing numbers of lenders are authorizing the use of AVMs. 1 Source Data offers 9 different AVM products from 8 vendors, and good loan officers have already begun to ask lenders which AVMs they accept.

One product – the VerosLite Report – is designed specifically for LOs and Brokers. VerosLite offers the speed and accuracy of the complete reports, but at a special low price. This report makes wading-through MLS listings is a thing of the past.

BACKGROUND
Every AVM is a complex computerized calculator that imitates the traditional appraisal process. Large computers, working on vast databases provides the “automation.”
“Valuation” describes the output of the system. “Model” refers to the algorithms and methodologies used to analyze data and produce a valuation estimate.

AVM’s have several advantages over traditional appraisals:
• Reduce closing costs dramatically
• Streamline loan processes, especially for Refi and Home-Equity Loans
• Pre-qualify LTV-ratios
• Drive an Automated Underwriting Engine to approve borrowers
• Identify a market area’s price trends
• Identify fraudulent transactions.

Recent tests have shown AVM’s are far better and far more reliable than originally thought. They give results remarkably similar to traditional appraisals, but without bias, at a much lower cost, and they shave days off closings.

AMV MECHANICS
Each AVM company builds its own tools for imitating the appraiser’s art. Just like an appraiser, AVM’s evaluate repeat sales and searches for recent, local comparable sales.

And AVM’s rely on the same types of data sources, including:

Property tax roles
Real estate and appraisal networks
Multiple listing services
Property characteristics
Publicly recorded sales
Estimates of annual value increases
Geo-coding
Housing Price Indices

This data is analyzed using one or several methodologies:
• Price Indexing – valuation based on regional sales price trends
• Hedonic Models – accounting for physical property characteristics, such as square-
footage and room counts, as well as comps and matched repeat sales
• Adjusted Tax Assessed – statistically adjust a property’s tax assessed value to derive
a current market value
• Hybrid Models – a combination of methodologies.

And, like appraisers, AVM’s apply different tools or different factor-weighting depending on the general area or specific property, and integrate the results of several models to determine a value. Finally they regularly compare their reported valuations against actual sales and full-appraisals.

The important differences between an appraiser and an AVM are the amount of data analyzed and the speed of the analysis. AVM’s access huge amounts of current and historical data – usually more data than a local appraiser can locate. Then – in just seconds – they deliver results directly to your computer.

All this makes AVM’s the next logical step in reducing costs and increasing reliability of the mortgage origination process. Among the notable users, Fannie Mae and Freddie Mac use AVM’s to drive their automated underwriting; GMAC approves new loans to servicing clients using AVM’s; and, portfolio lenders are using AVM’s for quick approvals on Refinance and Home Equity loans. Finally, a few large lenders are getting good results from AVM’s in their purchase-money test programs.

TYPICAL AVM REPORT
The most critical data field on the AVM is the estimate of the VALUE. Depending on the vendor and the product chosen, they may also be a VALUE RANGE. The Value Range estimates the range of values in the neighborhood, accounting for the general condition of the home – from rundown to recently remodeled/repainted.

CONFIDENCE SCORE is another important, and often misunderstood factor. Confidence Scores are consistent measures of score accuracy. It indicates the correlation between the Value reported and the actual value of the property. For example, a Veros AVM Confidence Score in the 90-100 range indicates the customary variance for all properties with those scores falls within 5% of the Value reported. However, the detailed meaning of these score can vary by vendor.

The PROPERTY INFORMATION offers a general description of the property, with information like the date the property was built, the square footage, and number of bedrooms.

The MARKET DATA SUMMARY summarizes the sale-price of recent, close by comparable properties – 2 to 6 properties are commonly listed. Frequently reports include detailed information of the properties listed.

Depending on the product, you may find these addition fields:

SALES HISTORY – date and price of previously recorded sales
NEIGHBORHOOD PRICE RANGE – summarizes recent close-by sales
AREA PRICE TRENDS – summarizes monthly changes in average price
FORECAST – predicts price changes in the next few months.

ORDERING AN AVM
From the Main Page, Select “Open” under FirstClose Services



At the Desktop select an existing file or open a new file. Then select Valuation.



You only need to enter the property address to order the AVM of your choice.



About 10 seconds after ordering, the AVM report will display on your computer screen. It can be saved for your electronic file and can be printed for your client file.

When ordering, you may Cascade Thru All AVMs. This feature selects the first vendor in the list, determines if that vendor has a value for the selected property, and produces that report. If that vendor does not have a value for the selected property the program will skip to the next vendor and check for a value. The process continues through the entire list of vendors.

There’s no charge for cascading, and no charge for attempts that return “No Value.”
Earlier in this document I mentioned you’ll never again need to rifle-through MLS listings.

The reason is VerosLite.

VerosLite is a condensed version of the VerosValue AVM. VerosLite eliminates the hassle of searching through multiple listing books and making side-by-side comparisons when the only thing you need is a quick estimate of a property value. You get the same accuracy found in the expanded VerosValue product, but without the Confidence Value.
VerosLite is more accurate than any free Internet estimate, and doesn’t eat-up you time like MLS comparisons. And Price? It’s so low you’ll never again waste time searching for comps.

SUMMARY

If you haven’t started asking lenders which AVM’s they accept – especially for Refi and Home Equity loans – you are missing an opportunity to speed-up the qualification process and reduce your borrower’s closing costs.

1 Source Data offers AVM’s for lenders and mortgage brokers looking to more efficient in their operations. Whether you need a quick value verification or a complete listing of recent sales, one of our AVM products can reliably and cheaply get you the data.

For sample reports and more information, contact our Sales Department at (800) 922-1301.