Residential Appraisal Products Unveiled: From AVMs to Traditional 

 

 Automated Valuation Models (AVMs)

 

Imagine getting an accurate property valuation in minutes without leaving your kitchen table —sounds too good to be true? Enter Automated Valuation Models (AVMs). According to The Dictionary of Real Estate Appraisal, 6th Ed,

an AVM is a sophisticated computer software that analyzes property and market data to assign a value or range of values to a property. It also generates metrics to assess the credibility of these valuations. 

 

AVMs leverage a treasure trove of data about the subject property, such as public records (year built, lot size, square footage, bedroom/bath count, utility information, etc.), assessment data, prior sale amounts, recent sales in the area, market trends, neighborhood data, and school district information. The best part? No need for a personal inspection by a certified appraiser or property data collector (PDC). This makes AVMs incredibly cost-effective and quick—ideal for low-risk scenarios where speed is essential. 

 

However, the convenience of AVMs comes with a caveat: data accuracy. The information AVMs use can sometimes be incomplete, incorrect, or outdated. Recent home improvements, especially those not requiring a building permit, might not be reflected in the valuation. Additionally, an AVM may struggle to accurately assess the quality and condition of properties and comparables. 

 

Despite these limitations, AVMs are invaluable as complementary tools or starting points rather than standalone solutions. 

​

• Best for: Low-risk situations, quick estimates, homeowners needing a fast valuation, lenders needing quick preliminary assessments. 

​

Desktop Appraisals

 

Desktop appraisals offer a convenient alternative to AVMs, as they also don't require a personal inspection by a certified appraiser. Instead, appraisers utilize extensive data similar to that used by AVMs, such as public records

(year built, lot size, square footage, bedroom/bath count, utility information, etc.), assessment data, prior sale amounts, recent sales in the area, market trends, neighborhood data, and school district information. 

 

However, desktop appraisals require a floor plan of the property, which may or may not be readily available in public records. According to Fannie Mae’s Selling Guide, appraisers can also use data, photos, and floor plans from parties with a financial interest in the sale or financing of the property, provided this information is verified by a disinterested source. The appraiser must ensure the credibility of the supplied information; if it's not credible, it cannot be used in the report. Moreover, extraordinary assumptions, which could alter conclusions if found false, are not permitted in desktop appraisals. 

 

These appraisals are suitable for specific properties: one-unit properties (including those with accessory dwelling units (ADUs) and those in planned unit developments (PUDs)), principal residences, purchase transactions (including new construction), and loans with a loan-to-value (LTV) ratio of 90% or less.

Despite their limitations, desktop appraisals are valuable when detailed property data is accessible and verified, though they may miss unique property features without an in-person inspection. 

​

• Best for: One-unit properties, low LTV loans, principal residences, new constructions, purchase transactions. 

 

Drive-by Appraisals

 

This is the first appraisal on the list which requires a personal inspection by a certified appraiser; however, as assumed by the name, the inspection is an exterior-only type of inspection. While this type of inspection is not necessarily just a “drive-by,” it may include the appraiser stopping to take multiple photographs and notes regarding the exterior of the property and the overall neighborhood. 

 

While the exterior of the property and the surrounding area are viewed by the appraiser in person, all other information is gathered from the sources used by an AVM and a desktop appraisal, including, but not limited to, public record data (year built, lot size, square footage, bedroom/bath count, utility information, etc.), assessment data, prior sale amounts, recent sales in the area, market trends, neighborhood data, and school district information.

These assignments pose similar challenges as the desktop appraisal because the lack of a personal inspection may mean that an appraiser inaccurately classifies the condition of a property or misses a unique feature that could ultimately affect the value and poses a risk to the appraiser and their state certification.

 

While these appraisals became more popular during the COVID-19 pandemic, they have been a viable valuation option, especially for home equity loans provided by credit unions and pre-foreclosure/foreclosure assignments when access to the property is not granted by the occupant. 

​

• Best for: Home equity loans, pre-foreclosure/foreclosure assignments, properties with limited access, low-risk valuations needing some level of inspection. 

 

Hybrid Appraisals

 

A hybrid appraisal, in the eyes of a certified appraiser, is most similar to a desktop appraisal due to the lack of personal inspection completed by said appraiser. A hybrid appraisal treats the inspection and the appraisal as two assignments and may be completed by two different people. An inspection for a hybrid appraisal is typically completed by a third party (property data collector, real estate agent, insurance inspector, etc.); however, this third party may or may not have been trained on inspection techniques and may not supply accurate information regarding the quality/condition of a property. The information gathered by the third party is supplied to the lender who passes it along to the appraiser at the time of assignment. The appraiser will use information available and the report provided by the lender to develop an opinion of market value. 

 

According to Fannie Mae’s Selling Guide (B4-1.2-03, Hybrid Appraisals (02/07/2024)), a hybrid appraisal is only permitted when all of these preconditions are met in this sequence: 

1. DU determines the loan is eligible for value acceptance + property data. 

2. The lender obtains property data and submits it to the Fannie Mae Property Data API. 
3. The property data confirms that the property type is residential and not on the Ineligible Transactions list.
4. The loan loses eligibility in DU for value acceptance + property data due to a change in qualifying loan characteristics.

5. The lender provides the property data collection to an appraiser to perform a hybrid appraisal assignment. 

 

While information regarding the property is supplied by a disinterested third party, the appraiser may or may not know who has collected the information or how well trained they are to be able to complete an appraisal inspection. Therefore, these assignments pose similar challenges as the desktop and drive-by appraisals because the lack of a personal inspection may mean that an appraiser inaccurately classifies the condition of a property or misses a unique feature that could ultimately affect the value and poses a risk to the appraiser and their state certification. 

​

• Best for: Loans with specific preconditions, properties requiring a combination of external data and some level of inspection, lenders needing a balance between cost and detail. 

​

Traditional Appraisals

 

These are the most common types of appraisals where a certified appraiser is assigned to visit the subject property and perform a personal inspection which includes notes, photographs, and measurements, which may be made to conform to the current ANSI Standard depending on the client’s requirements. This comprehensive approach ensures a highly accurate valuation.

Make no mistake: traditional appraisals are the gold standard for reliable and nuanced property valuations. 

 

A personal inspection completed by a certified appraiser allows for discussion of updates, improvements, and changes that you have made to the property. Additionally, this allows you to ask questions and provide market data to the appraiser. 

 

While a traditional appraisal is more time-consuming than an AVM, you can be confident that you are receiving a detailed and personalized valuation. 

​

• Best for: Income producing properties, high-value properties, unique or complex properties, detailed and personalized valuations, situations requiring the highest level of accuracy and reliability.

Conclusion

 

Commonwealth Residential Appraisal Group is dedicated to guiding you and your clients through the appraisal process, ensuring you choose the right product to advance your goals with confidence and precision.