Are automated valuation models and traditional valuations mutually exclusive? We explore this very question. First, let’s take a look at the differences between traditional valuations and an automated valuation model (AVM).

What we know as traditional valuations is completed by a human – a licensed/ registered practitioner. As you know, a valuer visits the property and inspects it to ascertain its characteristics. They will also look at the interior and exterior condition, and sales of comparable properties in close proximity to the property in question. The valuer will evaluate the property based on the purpose of the valuation.

An automated valuation model or AVM does not involve a human inspection of the property. It is an automated program that estimates a property’s value based on an analysis of property characteristics against public record data. An AVM does not review interior and exterior property conditions, though some will include street view imagery, which may raise some of the same flags that could have been raised on a drive-by valuation. (not common but can be used when the characteristics of the property are typical and known to the valuer).

AVMs are conventionally less expensive than traditional valuations, and much faster to obtain since they are available at the click of a mouse. Traditional Valuations are based on the knowledge and opinions of an appraiser and are thereby subjective, whereas AVMs are objective and are not impacted by a human’s opinion of a property.

While AVMs are convenient, they do not replace the need for traditional valuation. It is not a question of either or, because in fact traditional valuations and AVMs work hand in hand.
AVMs are most beneficial when used at the application stage. If an AVM is requested and there is a large discrepancy in the stated value of the property, then it may not make sense to order a traditional valuation and proceed with the deal at all. In cases where the AVM is consistent with the stated value in the application, it supports moving forward with the traditional valuation. In cases where the AVM is substantially higher than the stated value, this presents a valuable opportunity for you to advise the loan officer who submitted the deal that there may be an upsell opportunity.