New federal guidelines will significantly curb the use of automated valuation models in the appraisal process, says default management and valuation firm Integrated Asset Services, but they could also lead to more use of “hybrid” models.
Earlier this month the five federal banking regulators that make up the Federal Financial Institutions Examination Council—the Office of the Comptroller of the Currency, the Federal Reserve Board, the Federal Deposit Insurance Corp., the National Credit Union Administration and the Office of Thrift Supervision—issued guidelines that forbid regulated institutions from relying solely on technological tools like AVMs for a real estate valuation.
The agencies define AVMs as “computer programs that estimate a property’s market value based on market, economic, and demographic factors.”
According to the guidelines, “the results of an AVM would need to address a property’s actual physical condition, and therefore, could not be based on an unsupported assumption, such as a property is in ‘average’ condition.”
Ryan Tomazin, president of Integrated Asset Services LLC in Denver, said that given these requirements, lenders may consider “hybrid” models that incorporate both a licensed appraiser and an AVM for certain applications.
AVMs have been a point of contention in the mortgage industry. Technology providers have promoted their use as a way to get more accurate valuations in less time.
But some appraisers say they are an inefficient substitute for trained, localized professionals.
