Using an Automated Valuation Model (AVM) for real estate valuations isn’t new in the mortgage industry. Each year, technology plays more of a role in valuing homes for property appraisals, loan originations, secondary market investments, and even portfolio monitoring. So when it comes to valuing properties in a volatile market, as we experienced in the years since the pandemic, choosing the right AVM is imperative.
As a leading real estate technology company, Clear Capital pioneers new advances in AVMs for mortgage lending. We have almost 3 billion property records in our real estate database. And we’ve learned a lot over the last decade as we’ve researched and developed more accurate AVM tools. It’s important to know if your AVM will perform in an uncertain housing market and here are some tips for choosing the right AVM for property valuations.
What is an AVM in Real Estate?
An Automated Valuation Model (AVM) is a technology-based tool that uses algorithms to determine the value of a property. It takes in data on the property’s characteristics, location, and historical market information, and runs an algorithm to create a model which then makes predictions. Mortgage lenders, real estate agents, and appraisers use AVM technology for property valuations of both residential and commercial real estate.
An AVM in real estate should be rigorous, cautious, and extremely accurate. It should assess public records, market trends, property data points, machine learning, comparable properties, and similar properties to deliver an accurate AVM report.
Get an AVM for mortgage lending with current property data and speed
An AVM that can nimbly assess different housing markets helps you better predict the success of loans on the secondary market, like with Fannie Mae or Freddie Mac. Having up-to-date, current data is key. In a scenario where there are volatile housing prices, or housing prices could be volatile in the near future, a legacy AVM simply won’t perform.
Ever since March 2020, there’s been speculation on what the real estate market will do with the impact of COVID. Today, with consumer inflation and mortgage interest rate hikes, the future is anyone’s guess. But due to the pandemic, there’s been a lower amount of inventory or active listings on the market. In some markets, 20 to 40% of single-family home listings have been reduced. While lower amounts of homes are being sold, smaller cities and rural resort areas have become highly sought-after markets. Buyer booms in places like Boise, Bozeman, and Lake Tahoe have caused housing prices to skyrocket by as much as 30% in the last two years.
“More people have flexible jobs and they’re working from home,” Director of Real Estate Analytics at Clear Capital, James Marshall says. “Buyers are leaving densely populated urban areas to look for a little more room. So we’re seeing some migration patterns happening. The housing needs are changing.”
In order to keep up with housing market trends, it’s important for your AVM to have current property data and provide quick valuations. Some AVMs use data that’s 30 days old or more to predict the value of a home. By the time you hit go and wrap up, your predictions are outdated. However, AVMs such as Clear Capital’s online and integrated tool ClearAVM use current property data and can deliver accurate valuations instantly. Choosing an AVM that wins the proprietary data game and employs speed can help you adapt to the changing market and capitalize on new ones.
Find an Automated Valuation Model (AVM) with good coverage
If an AVM doesn’t have robust property data points on home sales across the US, it doesn’t provide the degree of accuracy that the real estate market needs. One of the factors that can negatively affect the accuracy of an AVM tool is limited data.
Several states in the US are classified as non-disclosure states. In fact, there are 12 to 14, depending on how you count the counties within them. In non-disclosures states, the sale price of a real estate transaction is not disclosed in public records. AVM providers need home sale prices to train their automated valuation model. If the AVM can’t assess the value of a property in 12 to 14 states, you’ll be stuck without a valuation.
“Real estate data is tough. It’s fragmented, challenging, and there are gaps and inconsistencies,” Marshall says. “The other trouble with public records and recorded sale prices is that the data is slow. If an AVM is providing valuations based on data from two months ago, by the time that data hits your AVM system, it’s two months in the past, and that’s not going to do if market prices are changing week by week.”
To ensure you’re getting precise AVM values, including in non-disclosure states, it’s important to choose an AVM with vast property data. Clear Capital’s automated valuation model ClearAVM provides data on over 139 million properties nationwide and has coverage on 95% of US homes. ClearAVM reports give mortgage lenders the home sale prices and comprehensive property information they need, even in non-disclosure states and hard-to-find properties.
Choose an AVM that has both human and machine learning
AVMs vary widely in the real estate industry when it comes to rigor, performance, and intelligence. And just as machines aren’t automatically smart, but are built with human innovation, an AVM needs both human AND machine learning to perform in an uncertain housing market.
“Having massive amounts of data is not all an AVM needs to be successful,” Marshall says. “At Clear Capital, our AVM is used in hundreds of thousands of valuation reviews each month and the feedback loop creates the opportunity for our team to continuously improve our implementation of machine learning.”
Machine learning is part of building a better AVM. If a provider gets the mathematical model perfect, then the AVM starts to do its job and becomes quite intelligent. Automated machine learning has caused AVMs to grow ever more astute at navigating the real estate market and delivering accurate property valuations. While the online tool ClearAVM takes a machine learning approach, others do not invest in using modern tools.
ClearAVM leverages Clear Capital’s vast property data and insights collected from over 20 years of boots-on-the-ground appraisals. It also performs quality control in every field valuation that Clear Capital produces. Advantages like these boost the power of machine learning and fuel the AVM’s predictions. With a focus on property features and market dynamics — the factors that matter most to the subject’s value — ClearAVM’s artificial intelligence applies this knowledge uniquely to each property out of the hundreds of millions that span a diverse economic and geographic landscape.
Test the most innovative AVM in real estate
Whether you’re originating, servicing, or refinancing loans, having accurate property data in a rapidly changing housing market is essential. While there are many AVMs to choose from, the automated valuation model ClearAVM uses the most comprehensive real estate data in the nation.
ClearAVM is an easy-to-use, online valuation tool that combines field-gathered data on 139+ million properties nationwide with technology to deliver valuations that are up-to-date with market trends. Rather than taking up costly time in a fast-paced real estate market, ClearAVM assesses a robust set of property data points to provide accurate AVM reports in just a few seconds. You can try ClearAVM for free to see how it fits your workflow.
The future of Automated Valuation Models
While AVMs are becoming prevalently used in property appraisals, they still aren’t the right tool for every property. Automated valuation models that use machine learning are the most reliable and accurate they’ve ever been, but traditional appraisals are still the gold standard for most lending decisions. What AVMs offer is another tool in the valuation tool belt when the situation is appropriate. By choosing an AVM with current data, robust coverage, and both human and artificial intelligence, you can be confident your AVM will perform in an uncertain housing market.
If you have questions about AVMs or want to see how ours, ClearAVM, performs with a free trial, reach out! Clear Capital is a national real estate valuation technology company with a simple purpose: to build confidence in real estate decisions to strengthen communities and improve lives. And we are always looking to connect with like-minded people in the industry.