In my May 2012 ValueNation column, I noted that while we are seeing the housing market start to level out, there are still a significant number of properties in default or foreclosure. These nearly six million properties pose a big challenge to a complete housing recovery. Accurate valuations are essential to moving these properties off the market quickly while maximizing returns. The use of a reputable real estate-owned (REO) automated valuation model (AVM) is one of the best ways for servicers and lenders to obtain an accurate valuation for a default property to minimize loss severity and lessen the chance of the property being undersold. Minimizing vulnerability to underselling a pool of such assets can only be accomplished with solid automated analytics specifically designed for this purpose―one at a time, appraisals would be far too cumbersome and expensive.
However, an REO AVM is just one of three approaches for determining property valuation, including an appraisal and broker price opinion (BPO). All three are trusted methods and should be used to best meet the specific needs for a valuation.
While they are rarely used simultaneously, it may make sense in some situations to order an REO AVM first and follow it up with either a BPO or appraisal. While it is rare that a lender would order a BPO and an appraisal, this might happen if a BPO was ordered, first but the lender didn’t trust it and decided to “upgrade” to an appraisal.
The differences in the three valuation methods are based on price point, turn time, expertise and content. For example, a typical REO AVM costs $20-plus and provides an immediate value, but an inspection report (if needed) will take two to three days and require an additional fee ranging from $50 to $75. A BPO will cost $100-plus and take two to five days (depending on the area). An appraisal will cost around $400 and take one to three weeks (depending on the area).
As for expertise, appraisers are licensed and trained to value properties, but there is no guarantee of objectivity. An appraisal is considered subjective and can be dependent on an appraiser’s perspective and ability to properly assess the property. Brokers are trained to sell homes so the valuation may be dependent on the opinion and motivation of the person reviewing the property. Since an REO AVM is a detached mathematical algorithm it is objective and the value is not swayed by opinion or level of expertise.
Benefits of using an AVM for valuation verses a BPO or appraisal includes:
►Immediate property valuation;
►Objective property valuation;
►Least expensive of the three valuation methods available; and
►Short turnaround time on obtaining a verification report for an extra fee.
Next month in this column, I will explore the logistics of using an REO AVM alongside an inspection report for a variety of valuation needs.
David Rasmussen is senior vice president of operations at Veros Real Estate Solutions. For more information, call (714) 415-6300 or visit Veros.com.