As published in Scotsman Guide's Residential Edition, January 2010.
The decline in home values caused by price correction, short sales and foreclosures, among other things, has created a market in which property appraisals often come in lower than expected. This disrupts sales and often squashes prospective homeowners' dreams. Appraisal problems also can put a swift end to mortgage brokers' transactions.
Automated valuation models (AVMs) and light AVMs, however, can provide brokers and their clients with accurate property values early in the loan process. This can prevent customers from feeling burned and can head off unlikely closings before too much time and effort go to waste.
AVMs are computer models that use comparable sales, appraisals, property characteristics, tax assessments, price trends and other real estate information to determine the estimated value of a particular home. They provide supporting information along with the estimated property value to help loan professionals and customers understand how the property got its estimated value.
The use of AVMs has grown significantly in the industry in the past few years as loan professionals have discovered the power of these tools. AVMs not only cost less than the traditional property-appraisal process, but they also reduce the time it takes to get a property's estimated value.
Light AVMs, meanwhile, represent a leaner, faster version of full AVMs and provide the same accurate property valuation at a fraction of the cost. These abbreviated AVMs use the same information as full AVMs to determine a property's estimated value. The main difference is that light AVMs don't provide the supporting documentation.
Light AVMs can be an ideal tool for prequalifying customers at the beginning of the loan process because the reports often are returned just seconds after they are ordered. The estimated value, estimated value range and a confidence score that leaner AVMs provide can help brokers determine quickly if a property will qualify for the loan a customer wants. Many loan professionals have added these abbreviated AVMs to their loan-prequalification routine because of the ultimate savings in cost and time.
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