"An AVM streamlines the process and uses several mathematical techniques and algorithms to provide a low, medium, and high estimated value of a property, at a specific date."
Thanks to the continuing growth of technology and processes, there are now a range of valuation models available in the property market to help borrowers move swiftly through the transaction process.
AVMs (automated valuation model) started to really take off during the Covid-19 pandemic, where full valuations, also commonly referred to as physical valuations, couldn’t take place owing to social distancing rules.
While the market slowed down during the start of Covid-19, the demand for short-term finance picked up significantly when there was an influx of developers and investors looking for innovative ways to continue their investments. A key example included the high demand for borrowers looking to undertake light to heavy refurbishment works where producing well-maintained properties, designed to fit the work from home trend, were being snapped up, sometimes within hours of coming to the market.
Borrowers had to move quickly to secure these investment opportunities, hence why bridging finance became the go to option. However, providing our borrowers with the speed we had previously been accustomed to became a challenge owing to unprecedented difficulties we faced as a result of the pandemic. Therefore, we had to discover new ways to process deals in a timely manner, which is why we made significant enhancements to our valuation offering.
Whereas previously we required a full valuation on deals, we now consider lending based on AVM and desktop valuations as well, making borrowing more accessible for customers, particularly in circumstances where speed is of the essence.
So, what are the benefits of AVM? An AVM streamlines the process and uses several mathematical techniques and algorithms to provide a low, medium, and high estimated value of a property, at a specific date. In addition, they also provide a range of confidence levels. While they are accompanied with a pre-completion video walkthrough, they do not require human intervention, and can therefore be delivered instantly at no cost to the client.
However, owing to how AVMs work, they are ideal for residential, low-risk loan-to-value deals. For example, they are not suitable for a property requiring further investigation, sites which are difficult to assess or perhaps don’t have enough historical detail to generate a satisfactory AVM valuation. Additionally, with an AVM, a valuer doesn’t visit the property, so the internal and external condition of the property isn’t assessed. Therefore, while they have many advantages, they are not always the most viable option.
If a property requires a more thorough investigation, this is when we would then look to see if a desktop valuation can be utilised. As you may have already guessed a desktop valuation does what the name suggests – a property inspection which is carried out by a valuation surveyor from the information they have available to them, from their desks.
Compared to an automated decision, the surveyor will manually investigate comparable property valuation data, together with geographical location, market influences and liquidity, as well as other factors. A benefit of a desktop valuation is that it tends to be a cheaper option than other valuation methods and can provide the information needed extremely quickly. It also includes more detailed comparables, can include a GDV (unlike an AVM) and provides useful recommendations and conclusions for lenders to consider. Desktop valuations can be used for a variety of properties including, residential, semi commercial and commercial.
That said, similar to AVMs, in some instances there is simply not enough data available for a surveyor to be able to utilise a desktop valuation method. When a client has a case which falls out of our AVM and desktop valuation, a full valuation is then required, which is where someone will physically view, inspect and analyse the property.
Ultimately, the most suitable valuation method depends on the criteria of the loan and the property itself.
