“Cascading” is the latest word in automated valuation model technology.
Cascading AVMs, similar in theory to blended credit reports, poke around at different AVMs, data sets and other information to come up with what supporters say is a more accurate home valuation. As the technology becomes increasingly sophisticated and accurate, it lends more credibility to AVMs and could further lessen dependence on traditional appraisers.
“No single AVM gives the best answer all the time, in the minds of many,” said Ben Graboske, VP and chief technology officer at First American Real Estate Solutions. “The thought behind the cascade was: let’s pull multiple AVMs.”
The idea might sound simple enough, but the methodology used is much more complicated. Introduced several years ago, cascading AVMs initially relied on the simple approach of averaging several AVM results to come up with a valuation. Now, cascading AVMs such as First American’s Vector employ a complex set of rules to come up with an acceptable valuation.
Vector, officially announced this month, is not an AVM, but rather a tool that lets risk managers determine the order in which AVMs are run, based on a number of criteria. Those can include geography, estimated value, loan amount, loan-to-value ratio and loan type. Risk managers also can set rules for acceptance of AVM results such as meeting a minimum threshold for confidence score. And if they don’t receive an acceptable AVM result, they can trigger the selection of other property valuation methods such as broker price opinions, insured AVMs and traditional appraisals.
“This isn’t just a brute force, grab a bunch and take the average approach,” Graboske said.
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He describes it as a platform based on extensive quantitative analysis and particular underwriting rules intended to reduce lenders’ risks and costs. Vector enables lenders to control which rules and information are applied and in what order to apply them since many lenders have the staff in place to determine which factors should be examined, Graboske said.
But Vector also comes in a version designed for those generally smaller lenders that don’t have a large staff. In those versions, First American can program which AVMs will be looked at first, depending upon their general accuracy rate in certain locales as well as a host of other factors. Lenders input the property address and the most accurate valuation is returned, Graboske said.
“We built this platform with a broad variety of users in mind,” Graboske said.
Publicly launched Monday during the Mortgage Bankers Association conference, Vector already has users from the top 15 lenders. Top lenders already understand how cascading AVMs work, but many smaller lenders still aren’t sure, Graboske said.
“The era is here where they can get that type of lower risk management and appraisal alternative solution,” Graboske said.
He doesn’t expect cascading AVMs to make traditional appraisals obsolete. He still sees them filling a niche within the industry, and technology such as cascades brings greater efficiency, accuracy and credibility to AVMs, which could lead to more widespread use.
“Ultimately, if you have greater focus, if you have actually quantified your risk better through this level of analysis, you’re not just going on a wing and a prayer and thinking, ‘Gee, I hope this AVM was good,'” Graboske said.
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