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Valuation

Dubious World of AVM Testing

posted by : Yong Kim on February 23, 2012

 

Last week, we received our AVM test results from one of the largest banks in the U.S. To their credit, they are one of a few banks that periodically conducts their own AVM performance analysis, in order to better align their AVM cascade, rather than depending on vendor reported AVM performance results or relying on third party results.

The bank actually conducts their tests on two populations of loans: a population of recent purchase loans closed by the bank, and a population of closed refinance loans where the appraisal value is used as the benchmark. They do this since they only use AVM values to support their refinance activity. This is also very clever because it provides some visibility into which lenders may be gaming the third party testing process by way of MLS data, or access to recent sales data on the subject property.

It is widely accepted among AVM providers that third party tests can be easily gamed due to access to MLS data or known sales data in the test population, distributed by the testing firm, which consists of addresses of properties that have recently sold. In fact third party testers rely on the AVM vendors to not return valuation estimates when the actual sales price or listing price is known within their own database. Unfortunately this methodology places far too much reliance on the integrity of the vendors, resulting in large discrepancies between the reported performances versus the actual performance experienced during deployment in the real world. This behavior is very easily observed based on the test results we received last week.

Generally auto valuation models are built using sales comp data around the subject property. Consequently the accuracy should not vary by much, and should not depend on whether the subject property is listed for sale or not. In other words, a model should return the same valuation estimate on a property before or after a listing, and should not be influenced by the listing price of the subject property.

When we observe the test results however, the wide disparity between the accuracy achieved on the purchase loan population compared to refi loan population, among some vendors, is quite suspicious. This is especially evident among the models that perform very high on the purchase loan population while performing average or below average on the refi population. In fact 7 out of the 23 vendors had a 20 point or more discrepancy between the two test populations. As an example, I’m observing models that performed 81% within 10% on the purchase population, but achieving only 46% within 10% on the refi population. Another resulted in 81% vs 54% within 10%. (As an aside, you should question any AVM that is performing near 80% within 10% since most AVMs perform within 50 to 60% within 10%. This is statistically equivalent to finishing a 100 meter race under nine seconds – very suspicious!) Overall, although our AVM was not the first in both cases, I was pleased to see that we performed above average and very similarly on both tests.

Property Research and the iPad

posted by : ThomasC on July 12, 2011

I just saw a great application for the iPad that will interest anyone whose doing real estate listing presentations, or any other presentation for that matter. A company called Avatron.com has launched the “Air Display” app that wirelessly turns any iPad into an extra monitor for desktops or laptops. Users can orient their iPad vertically or horizontally and what’s running on your laptop will show up on your iPad. Pretty cool huh?

I immediately thought of our customers using PropertyFinder 2G. A Real Estate Agent doing a listing presentation can interactively change comparable sales criteria and produce new reports right there with their client. Just log into PropertyFinder 2G using your laptop wireless connection and show the seller what’s on your screen using this new iPad app. The display is much brighter and clearer than the standard laptop screen, but you still have the interactive ability you gain while using PF2G on your laptop.

We’re working on building iPad access for all our property research, property valuation and marketing tools. For now, this is a great work around.

Look for the Air Display app in the iTunes store, and keep reading these blog posts for product updates on new ideas for using DataQuick’s property research and valuation tools.

Beyond Administrative Appraisal QC

posted by : RandyW on June 24, 2011

Existing collateral valuation and review practices do not deliver high enough quality, increasing the incidence of buyback and default risk. Additionally, current solutions consume significant resources and time because they typically require a manual effort, are inconsistently deployed, and not scalable.

The demands that originators, servicers, and AMCs face today require a comprehensive end-to-end solution that validates not only the administrative accuracy of the value, but also the value itself and the sales comps used to support the valuation.  In addition to a validation of the true, key components of the valuation, next generation solutions also have to provide intelligence and automation to all participants in the supply chain to help them become significantly more efficient.

Next Generation Valuation QC tools must do the following:

  • Make appraisers and brokers more efficient and help them deliver more accurate valuations by providing critical property, neighborhood, and base valuation intelligence before they start their work.
  • Provide the same level of property, neighborhood and base valuation intelligence to AMC and lender review staffs to speed their review and improve the quality of their reviews.
  • Leverage appraisers’ and brokers’ local knowledge with interactive tools that allow them to easily extract trends and key metrics from the data they bring to the valuation process.
  • Deploy an automated, consistent interrogation of the property value and comps utilized to help AMCs and lenders be more efficient in their review process. This type of interrogation allows AMCs and lenders to categorize valuations (Pass, Review, Fail) and route valuations to the most qualified review resources.
  • Deliver added efficiency to the AMC and lender by identifying specific variances from their original requirements and providing prescriptive direction on the specific areas of the valuation report they should review.
  • Allow the lender to configure the entire solution based on their specific business requirements realizing that these requirements may vary based on business line and/or geography.
  • Enhance the AMC and lender review process with alerts highlighting potential fraud in the valuation process based on specific content provided in the valuation report.

This type of comprehensive approach will allow appraisers and brokers to complete their work faster and with a higher degree of accuracy. AMCs benefit from a streamlined review process that ideally reduces the number of iterations with the appraiser. Lender will be in a better position to defend any claims of under- or over-valuation with a clearly documented audit trail that supports the values that were submitted and the comps that were used to determine the value.

Tax Assessed Values for Evaluations

posted by : BruceS on April 28, 2011



I was recently asked by a mid-west lending institution whether they should consider using residential tax assessed values.  In this instance, the tax values would be used during a portfolio review where automated valuation models (AVMs) were unable to return a value.  Is it acceptable – and prudent – to  use tax assessments as a proxy for home values?

The question is timely for several reasons.  First, new regulatory guidelines issued in December – which affects almost every bank and credit union – specifically reference the use of Tax Assessed Values (TAVs) for evaluation purposes.  They state “institutions should demonstrate that a valid correlation exists between TAV data and market value” within a tax jurisdiction.  I interpret this guidance as requiring lenders to conduct validation tests on TAV accuracy no different than they would for AVM testing.  That said, you should consult with your regulator for your own situation.

When home values across the country were steadily appreciating, there was a perception that risk in the use of TAV’s for underwriting was mitigated.  Assessed values typically lagged true market values, and, therefore, the TAV would err on the side of being conservative.  In today’s uncertain market this assumption no longer holds water, and assessments in many areas are grossly overstated when compared to actual sales prices.  Add to this the fact that tax assessments in most jurisdictions are only updated yearly, and the chances for error are compounded.

Consider this story of an institution and their use of tax assessed values:

  • Prior to April 2011 they used TAV’s for home equity and certain 1st mtg transactions (low LTV and loan amounts)
  • On April 1 they switch to using an AVM cascade with a property market condition report
  • As the early AVM hits come in they are pulling some TAV’s for comparison purposes
  • One particular instance produced the following
    • TAV = $210,000
    • AVM = $130,000
    • The borrower had just purchased the property via short sale just a few months prior at a price of $135,000

AVMs should not be used for every lending transaction – each loan’s risk scenario and the lender’s/investor’s underwriting criteria should dictate the type of valuation method to use.  My point is to make sure you understand the limitations in the use of TAV’s, as illustrated in the above example.

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