Automated property valuation and the lender experience

Aug 26th, 2021 | By FCT

Successfully operating as a broker or mortgage specialist, or operating a lending institution takes instinct and strategy in an industry where one bad call can cost hundreds of thousands of dollars. Lending professionals rely on accurate valuations of the properties they deal with to make smart, informed decisions, but today accuracy is no longer enough.

The real estate market created by the pandemic puts unprecedented pressures on Canada’s lending professionals. Deals need to close in record speed, with no loss in accuracy, in a high-volume market. Traditional valuation processes have struggled to keep up, which has led to accelerated adoption of radical new technology in the valuations space.

What are AVMs?

Automated Valuation Models (AVMs) are AI-driven solutions that calculate the value of a property based on sales data in the area, as well as any data they can find on the property itself. They offer lenders much quicker valuations at a lower cost than traditional appraisal methods, without sacrificing accuracy.

FCT’s iAVM, uses the greatest breadth of property data in the industry—over 250 data points per property—and we stand by it. It builds a confidence score into its valuations, and we insure our valuations so lenders can always rely on their accuracy. The confidence score lets us counter the main downside of AVMs for lenders: not every area has the same wealth of data.

Can AVMs work in rural and remote areas?

AVMs rely on high volumes of sales data in an area in order to boost their accuracy—the slower or sparser a given market, the less reliable the result. This makes AVMs less accurate in rural areas, which can pose a problem for lenders in today’s market, where more buyers are looking to work from home in increasingly out-of-the-way places.

A lender operating in the Metro Vancouver Area might have deals they’re trying to close on outside Kelowna or up the Fraser—well outside their branch footprint, and often in difficult-to-appraise areas. Getting an appraiser to a remote Okanagan property more than once and getting a valuation can take days, sometimes weeks, in a market where either you close quickly or you lose out. Lenders need to be able to make confident, informed lending decisions, which can’t happen without fast, accurate, cost-effective property valuations.

This trend challenges many AVMs, but we found a solution. If the confidence score on our iAVM valuation is too low, then that transaction moves to FCT’s Flex Appraisal system, where a certified appraiser can look at and evaluate the result. Their expertise and judgement, without the time-consuming legwork, lets the appraiser offer a confident valuation on even challenging properties within hours. Only when an appraiser judges the system itself doesn’t have enough data for an accurate appraisal, it becomes necessary for an in-person appraisal.

Lenders rightly expect their experience to improve with technology, the only question has been what form that improvement will take. Is there still space for the human element in an industry increasingly shaped around automation? We’ve found that the answer is a resounding “yes.” Lenders need the data and knowledge to make informed lending decisions, but the solution isn’t to remove appraisers from the valuations process. Working together with, instead of against valuations models, today’s appraisers are poised to meet the challenges of the new market with their lender partners.

Learn how FCT is working with appraisers and technology to provide lenders more solutions than ever before.

 

 

Insurance by FCT Insurance Company Ltd. Services by First Canadian Title Company Limited. The services company does not provide insurance products. This material is intended to provide general information only. For specific coverage and exclusions, refer to the applicable policy. Copies are available upon request. Some products/services may vary by province. Prices and products/services offered are subject to change without notice.

 

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