It’s time to change our definition of success.
For more than 15 years, Automated Valuation Models (AVMs) have supported lenders by offering quick decisions on around 90% of purchase applications that fall within their lending policy.
It’s a great result, but it’s time to move forward.
From AVM to digital valuer
AVM solutions are evolving from being a single function tool that provides an automated valuation based on property data into an all-round digital valuer with vast potential.
But if physical valuers already do an excellent job, why try and replace them?
Their expertise is not in question. What should be examined and subsequently challenged, however, is why they were instructed and whether it is was a valuable use of the lender’s time and money.
Helping lenders avoid costly second valuation opinions
When the AVM result fails the lender’s criteria, or confidence in the stated valuation is poor, a surveyor is sent to the property to find out more.
The AVM has already established there’s an underlying risk which is casting doubt over the property’s value. That makes it likely that the surveyor will return a zero valuation.
It may well be on closer inspection that the house has in fact got a thatched roof or it’s made of precast concrete, for example. Not the standard construction noted on the application after all.
But what if the AVM could do more than cast doubt on the valuation?
Helping lenders identify risks
Rather than just hinting at the presence of risks, the next stage of AVM evolution will be a digital valuer tool that can tell lenders what they are.
Out of the 23 top risk related questions posed by lenders on a standard survey, automated valuations can definitely answer three; the valuation, comparable evidence and buy-to-let rental value. There’s also the potential to establish the property’s desirability and demand.
Where we are headed is a digital valuation tool that can draw on vast amounts of data with the potential to validate all 23 fields.
Building climate change considerations into AVMs
Digital valuations have been quick to make strides in areas where central data is already available.
Climate change and flooding, the tenure and lease term of a property, the title and its restrictions can already be risk assessed digitally instead of by a human.
This makes up around a third of lenders’ risk concerns which leaves lots to be done.
It’s undeniably a big challenge but the possibilities are exciting.
Digital valuer capabilities
Consider this. In the not-too-distant future, digital valuations will be able to tell a lender that not only is the property 30 metres from a commercial premises but that the unit is a tyre shop or a fruit and vegetable store.
When it comes to enhancing or damaging the desirability of the property, one is definitely preferable over the other.
Up to date Energy Performance Certificate (EPC) ratings will be at a lender’s fingertips. They’ll know instantly whether a house has a steel frame, or if the declared two-bedroom terrace is actually a flat above a takeaway. And they’ll find out in seconds whether a buy-to-let property has a licence to operate as a House in Multiple Occupation.
The future of comparable evidence must change too. A physical valuation includes the three closest comparable properties, hand-picked by the surveyor themselves. An AVM returns 20.
For lenders to put as much trust in the comparable evidence offered by a digital valuer as they do a human surveyor, a smaller, bespoke number of properties must be selected.
Internal inspection goal for lenders
To truly replicate a physical valuation, the ultimate goal is to report on the internal condition of the property. This is the one area where the human touch trumps technology, for the moment at least.
Even now, there’s innovation happening that will eventually enable a digital valuation to see inside a property.
A home up for a sale is the easiest transaction to tackle. With multiple photos taken when the home is listed for sale, a superficial inspection of its condition can be made. In the future, artificial intelligence can review the photos to decide whether they’re good or bad.
What if no photographs exist? One answer is geolocation technology. It uses digital information that can identify if the borrower, through their mobile phone, is inside the security. Once their location has been confirmed, they could take a video tour of their home for the lender.
Overcoming AVM challenges
The potential for digital valuations goes way beyond reporting how much a property is worth.
The challenges are tough, however, especially in areas where information collected has yet to be digitalised such as the cladding data captured on EWS1 forms.
But as the quote goes, ‘nothing worth having comes easy’.
Progress, however, is coming.
In the noughties, automated valuations were a breakthrough moment all by themselves. Allowing lenders to deliver a faster service to their borrowers.
Now two decades on, we think it’s time for another breakthrough.