Automated Valuation Models (AVMs) are having a moment.

With U.S. homeowners sitting on more than $30 trillion dollars in home equity, many lenders are looking to the latest AVMs to improve the accuracy and efficiency of their home equity lending. Here are four ways the next generation of AVMs are reducing risk, accelerating decision making and cutting the cost of home equity originations.

1. AVMs are getting smarter

AVMs have been a “workhorse” lending tool for more than two decades. But, recently, the availability of new data, additional computational power, and AI- and machine learning-based modeling have made these AVMs even more accurate, reliable and useful. And the timing couldn’t be better. Lenders and marketers are looking for better ways to process home equity loans, craft more precise marketing campaigns and engage with prospects more efficiently in consumer-direct settings. At First American Data & Analytics, we’ve been at the forefront of developing the next generation of AVMs, incorporating advanced technology to improve how they can be used to better support these initiatives while improving accuracy and currency.

For instance, we update underlying data, retrain our models, and run valuations on every residential property in the country every 24 hours. An automated surveillance system constantly monitors both data and valuation quality and performs extensive testing to validate the accuracy of the valuations produced for different property types in various geographic markets. Ultimately, this translates into smarter AVMs that can do more in less time. 

2. Next-generation AVMs balance cost and risk

Unlike first mortgages, HELOCs are usually low- or no-cost products for consumers. As a result, lenders need to be as efficient as possible in originating these products in order to protect their margins. Cost is one of the reasons why AVMs have historically been the valuation product of choice for home equity products. While many banks and credit unions rely on AVMs, some institutions have, post-mortgage crisis, taken a more cautious approach, relying instead on hybrid valuation products, like desktop and even full appraisals, in their decision-making.

More advanced AVMs provide these lenders with new options, particularly for low loan-to-value (LTV) clients and HELOCs. Using AVMs in conjunction with a property condition or inspection report will yield highly accurate LTV ratios that further improve decisioning and mitigate risk. Whether a lender is absorbing the cost of the property valuation or passing the cost on to its customers, saving money by using a lender-grade AVM is a bottom-line benefit.

3. AVMs are no longer one-size-fits-all solutions

Most technological breakthroughs follow a similar trajectory – an initially one-dimensional solution to a single problem becomes, over time, more nuanced with specific adaptations that offer customized versions for more narrowly defined uses. Our latest AVM Suite, Procision, reflects this pattern of technological evolution and it was designed specifically to meet the various needs of lenders and marketers.

Marketers mining data on home values to create an efficient marketing campaign will prefer an AVM, such as Procision Direct, that provides accurate homes values with high hit rates, delivered in bulk and at a cost that delivers significant return on investment. Additional data search options and customization allow marketers to target prospects by geography, loan balance, borrower demographics and LTV ratios, among hundreds of other searchable characteristics. Consumer-facing companies that provide home values to engage customers will value a white-label AVM solution with total property coverage, delivered via API with data embedded directly into their website, such as Procision Power. And lenders looking to use AVMs in connection with making loans will prefer a highly accurate lender-grade valuation model that is updated daily and provides fully compliant documentation, such as Procision Premier.    

In addition to generating valuations tailored to customers’ needs, the Procision AVM suite offers customizable search and match-and-append options with pricing structures that allow customers to align their use of AVMs within tightening budget parameters.

4. New data capabilities are on the horizon

As we have seen, more data, machine learning, and more computing power have already further enhanced the value of AVMs and even more enhancements are on the way. For example, incorporating geospatial data into AVMs increases their ability to value one-of-a-kind properties and remote properties, two categories that are often challenging for AVMs to accurately value.

Improved imaging technology and drone views have the potential to capture the physical condition of the property itself and provide a better perspective on the exact shape of lots, and what borders a property. These new capabilities will be game changers for AVMs.  

For more information on Procision, click here.

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