Automation of Home Loans Valuations
Today a story about Picture Financial adopting an Automatic Valuation Model (AVM) for Secured Loans caught my eye. Apparently Picture has installed Hometrack AVM with the help of the specialist software company Target Group.
As I didn’t know much about how AVMs manage to calculate, what must be a reasonably accurate valuation of a property, I did a little digging to see how they work.
Apparently they pool together information from various sources like previous valuations, property sales information and land registry data to calculate the value and, dependent on how much data the AVM has been able to digest, give a confidence level.
Apparently, there are two main versions of AVMs. The repeat sales regression method tracks the sales history of local properties to derive an estimate of a property’s value and the hedonic model uses a more sophisticated approach relying on a database of property sales values for comparable properties by location, type, size and features, just like a surveyor.
Recognising the rise of a new technology, an increasing number of players are jumping on the bandwagon. The two most established providers, Hometrack and UK Valuation, are facing increasing competition. For example, Rightmove has recently joined the AVM market and First Title, a subsidiary of First American Corporation, intends to join in 2007.
Research by the Council of Mortgage Lenders reveals that mortgage lenders believe AVMs will account for 40% of all property valuations carried out in this country by 2012.
If there is a growing trend to use AVMs in the Secured Loans market, we will probably see the already short times it takes to process a loan get even shorter.
