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A beginner’s guide to AVM and desktop valuations – Hope Capital

by: Jonathan Sealey, CEO at Hope Capital
  • 16/08/2022
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A question we are often asked at Hope Capital is what the difference is between an automated valuation model (AVM) and a desktop valuation.

Thanks to the continuing growth of technology and processes, there are now a range of valuation models available in the lending market to help borrowers move swiftly through the transaction process. 

 

AVMs 

Let’s start with AVMs.  

This method is for residential properties only and typically, is used on low-risk loan to value deals. AVMs deliver time and cost savings for clients, meaning they are vital for time-sensitive cases.  

So how do they work? 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.  

AVMs do not require human intervention, however, by using comparable data, they can be used to assist surveyors and lenders when they are looking to discover the value of that property.   

AVMs became an increasingly popular method during the pandemic when the country went into lockdown and physical valuations could no longer take place. They were key for ensuring valuations could occur and property transactions could continue.  

That said, although they are ideal for time sensitive cases, AVMs do have their weaknesses. 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. 

 

Desktop valuations 

That’s where a desktop valuation is 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 gross development value (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.  

However, 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. As a result, sometimes the only resolution will be for a physical valuation to take place, which is where someone physically views, inspects and analyses the property. 

 

When to use them 

So, when are AVM and desktop valuations the most preferred option?  

Both methods tend to be used when someone is buying standard premises where there are a lot of other properties of a similar type in the same area, which helps to provide a more reliable and accurate valuation.  

For example, smaller residential homes, which are generally often in demand, means they can be easily compared with any similar sales in the area, in the previous months.  

Ultimately, the most suitable valuation method depends on the criteria of the loan and the property itself.   

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