Five Key Questions to Ask Your AVM Vendor

It has been more than a decade since Automated Valuation Models (AVMs) were introduced to the primary mortgage market, and only nominally longer since they were commonly used as portfolio valuation tools in the post-origination segment. These days AVMs are ubiquitous; unfortunately, not all AVMs are created equally.

Given the vast array of choices and range of capabilities, carefully evaluating AVM vendors’ technology is mandatory. Here are five basic questions that can help you make more informed decisions when choosing your AVM vendors.

1. Can I review a copy your due diligence document?
If the response is, “What due diligence document?” or “What is a due diligence document?” take this vendor off your consideration list. The overall quality of a due diligence document is a reflection of a vendor’s commitment to, and understanding of, the AVM business. At a minimum, this report should contain an analysis of the due diligence testing methodology, including sources of reference values along with AVM performance by state, property type and confidence score interval.

2. What test methodology is used in your due diligence document to determine valuation accuracy in terms of reference values?
The true value of any residential property is what a willing buyer and seller will agree to in the absence of fraud, duress or undisclosed seller concessions. Blind testing against recent sales prices is one of the best methods for determining valuation performance. For this reason, you should insist on due diligence documents predicated on blind testing with actual sale prices appended.

3. What types of continuous quality control (QC) procedures are used by the AVM provider?
The real question here is, “What are the chances that a given market has endured an inflection point and the AVM has yet to see it?” Any AVM you consider should have some kind of continuous testing process that provides substantial insight as to when AVM performance has been impacted for any reason. The best evidence of a strong continuous testing program can be obtained by asking to see the results of the vendor’s latest QC efforts. If an AVM provider cannot provide this for you immediately, assume that the company’s testing program may not be as robust as you had anticipated.

4. What kind of AVM platform do you have and what other AVM brands can be purchased there?
An AVM platform recognizes the fact that no single AVM brand dominates all categories of performance. This is why most lenders employ several different AVMs from around the country, often supplemented with regional AVMs and traditional valuations. Ideally, the AVMs you select should all be available on your platform of choice, along with access to traditional valuation products from multiple providers.
Furthermore, the AVM platform you choose should incorporate an element of “self service” so that changing the rules of AVM engagement can be accomplished without a call to your technical department or the platform provider. Adding or deleting AVMs, testing a larger tolerance to over-stated values and other routine activities should be carried out quickly and easily, and with an automatic audit trail for compliance purposes.

5. Other than your own platform, what other AVM platforms are capable of delivering your AVM?
Even if your preferred brand(s) do not offer a delivery platform, or offers a sub-standard platform, you can find most major AVM brands on the larger industry platforms. Since it is much harder to switch out a platform than an AVM, careful consideration should be given when identifying the best platform for your needs over the long term.

For further information, please contact Robert L. Walker, CMB, CMT, executive vice president collateral solutions for First American Real Estate Solutions at 714-250-6684; or by email at robwalker@firstam.com.

About First American Real Estate Solutions
First American Real Estate Solutions is a member of The First American Family of Companies and America’s largest provider of advanced property and ownership information, analytics and services. First American RES’ databases cover more than 2,900 counties representing 99 percent of the United States population. With more than 600,000 users nationwide, First American RES products are used by companies to improve customer acquisition and retention, detect and prevent fraud, improve mortgage transaction cycle time and cost efficiency, measure the value of residential and commercial properties, identify real estate trends and neighborhood characteristics, track market performance and increase market share. First American RES is a joint-venture company 80-percent-owned by The First American Corporation and 20-percent-owned by Experian. More information about First American RES can be found on the Internet at www.firstamres.com.