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Special Reports
Appraisals & AVMs
Valocity Executive Sizes Up Evolving Appraisals/AVMs
By Amilda Dymi
MEMPHIS, TN -- Automated valuation models have become part of the mainstream in
the mortgage origination process. Now, lenders can order hybrid AVMs, represented by the combination of two or
more AVMs targeting various sets of data.
"The new buzzword that is circulating in the AVM world has to do with AVM
testing and validation," said Shawn McGowan, president and CEO of Valocity here. And if so far AVM providers
offered some open testing and validation of AVMs, they could not offer analytical tools that compare one AVM to
another, he added, now "there is growing interest" in initiatives that will have the open market testing
and validation of AVMs where users can make comparisons. Moreover, the product itself and the understanding of
AVMs evolved, he said, so it is not the unknown product it was only a few years ago. AVMs are now highly accurate,
growing the need to find better ways how to use them.
"There has been a lot of talk about merged AVMs, where you take the strength
of multiple AVMs and bring them together," he said. "But we don't know how imminent that need is."
Besides products, he said, there are processes that rely on AVMs like progressive
collateral assessment, or waterfall AVM solutions. "There is a lot of talk in the marketplace on how these
cascading or waterfall AVMs have the potential to be easily misused."
According to Mr. McGowan, cascading AVMs are a business process where AVMs are
driven by a number of factors and rules following a certain order or number of factors, which can be business rules,
geographical data differences between two AVMs.
"You run the first AVM and it may or may not hit. If it doesn't hit, it will
automatically attempt to run the second AVM in the queue, and then it continues until all the business requirements
are met and a value is produced, or if all of the business rules are not met, no value is produced. One of the
concerns today is sequencing of the AVMs, which allows for the search of best AVM solutions.
"But it certainly is a downside to this business process that uses cascade
AVMs," he said.
Valocity has been evaluating its current product options on assisted AVMs. In
addition, the executive said, the company is monitoring regulatory compliance requirements and it is interested
in the performance of these AVMs, especially hybrid AVMs which are composed of "pure AVMs that run in 60 seconds
and the traditional products which take much longer and are much more expensive."
The executive noted that Valocity provides "valuation solutions, not products,
which sometimes is technology, sometimes a combination of products and business processes," and it does not
consider itself a traditional appraisal management company.
Mr. McGowan sees products as tools to build valuation solutions. Until a few years
ago when he joined the company, Valocity offered a number of traditional valuation products, but had not yet started
offering AVMs.
"The ability to sell AVMs is part of the valuation product solution, which
I believe Valocity has done successfully offering one of the top five AVM products in the market today," he
said. "But we do not look at ourselves simply as a provider of the AVM product, we look at AVM products as
components of building solutions for clients, therefore we have kept a close eye at what is going on the market."
Mr. McGowan believes that as the market is proving, "AVMs are gaining an
enhanced acceptance rate in the marketplace but they are still not yet the competitive alternative on all fronts
for traditional products. The AVM has become a product that serves specific needs, whether it is used in the home-equity
marketplace or in the purchase and refi marketplace where the risk justifies the use of the product. We're seeing
an enhanced utilization of this product, aspects of the product, or hybrids of the product that are only now gaining
acceptance."
Two specific examples are the insured AVMs and the appraiser or technically assisted
AVM product. Regarding the second product, he said, "a technician, who may or may not be an appraiser can
interact with an AVM, supplement the data offered by an AVM in such a way that it helps improve the performance
of the AVM specific to an assignment."
"I think you can marry local knowledge and expertise of an appraiser with
the speed and the efficiency of an AVM. You bring a tool that is not only potentially valuable to clients in a
refi and a purchase market, but also it is valuable as the market shifts and there is default activity," he
said.
Today "the benchmark product out there is a broker-price opinion, and here
is a product - the appraiser assistant, or technically assisted AVM, that is highly competitive in terms of price
point provided by the broker-price opinion," he explained. "It has the potential depending upon what
level of involvement a client wants the appraiser to take to be even more efficient than the broker-price opinion.
"These are the two areas where I think the evolution of the AVMs are heading
in the areas that are keenly of interest to us: the insurance AVMs and to me the one that is most interesting is
the technically assisted, or appraiser assisted AVM product," he said.
Other products gaining momentum and/or entering the mainstream AVM options available
in the marketplace?
"Any product has to go through a certain evolution. First the market has
to understand what the product is. They have to use that level of understanding to build trust as to how to use
that product and then look at how it can be utilized as a solution within their business application," Mr.
McGowan said.
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