While there are many scenarios in which a traditional appraisal is still the best (and required) choice, many lenders, servicers and investors are now leveraging a wide range of valuation types to help reduce cost, streamline their processes, and more appropriately offset risk.

Learn more about the different valuation options available today and how they vary.

Automated Valuation Models (AVM)

Automated Valuation Models (AVM) apply statistical modeling to a database of historical property values and sales information to generate an estimated property valuation. The most popular modeling methodologies are based on average and median house prices, repeat sales or hedonic valuations. AVM results may vary based on the type of statistical modeling incorporated and also by the depth and history of data in the reference database.

AVMs are technology-driven, making them the fastest and most cost-effective way to get a quick estimate of the value of a home. There is no fieldwork or analysis by an appraiser or real estate agent―which not only reduces cost and time but also can help eliminate potential human bias and fraud risk. AVMs are also tested for accuracy, providing a “confidence score” that indicates how close the estimate is likely to be to the final sale price.

Since AVMs do not include an inspection of the subject property, they do not account for current property conditions, including any damage or recent improvements, in the price estimate. This is not always necessary, particularly in neighborhoods that have similar conditions across the housing stock. As a result, transactions of surrounding properties inherently include condition as a variable. Simply put, an AVM will not be as accurate if the property’s condition is significantly different from the surrounding comparables.

Desktop Appraisals

Just as it sounds, this type of valuation is done at an appraiser’s desk. A desktop appraisal is completed by an appraiser, who may use property tax records, MLS data, or other public record data to estimate the property value.

Desktop appraisals are quicker and more cost-effective than traditional appraisals since they do not require the appraiser to do any fieldwork. However, the accuracy of a desktop appraisal is dependent on the quantity and quality of information available.

Hybrid Appraisals

Hybrid appraisals are just that, a hybrid of a traditional appraisal and a desktop appraisal. The appraisal report is still completed by a licensed or certified appraiser, but an inspection is done by another party, such as a real estate agent or property inspector.

Compared to a desktop appraisal, a hybrid appraisal offers a more accurate opinion of value since it encompasses the condition of the property. Hybrid appraisals are often faster and more cost-efficient than a traditional appraisal, since the appraiser is not doing the fieldwork.

Broker Price Opinions (BPOs)

A Broker Price Opinion (BPO) is an estimate of the potential selling price of a property that is performed by a licensed real estate agent or broker. The agent examines the property and leverages comparables and basic neighborhood information to develop an estimated opinion of price.

A BPO can be used in place of an appraisal in specific cases, such as a mortgage-backed security review, asset- or portfolio-management or other mortgage loan situations that don’t involve a credit decision. Like AVMs, BPOs are not the same as an appraisal of market value developed by a licensed appraiser under the Uniform Standards of Professional Appraisal Practice.

Choosing the Right Alternative Valuation Product

There are many nuances to the level of detail, scenarios for use, and accuracy these different valuation types provide. Determining the right fit can be difficult depending on the purpose of the valuation, statutory and regulatory requirements, and how you want to balance cost, efficiency and risk. The right partner is key and can help you optimize your valuation strategy to potentially maximize profit and minimize risk.

Real estate services provided by homegenius Real Estate LLC and homegenius Real Estate Inc. (collectively dba homegenius Real Estate). 7730 South Union Park Avenue, Suite 550, Midvale, UT 84047. Tel: 877-500-1415. homegenius Real Estate LLC and its wholly owned subsidiary are licensed in every state and the District of Columbia.