A rapid value appraisal, also sometimes called an automatic valuation model or AVM, is a system used by some lenders in lieu of a full appraisal for real estate loans. It’s usually used when the buyer has a big down payment, and the bank is comfortable that the purchase price is not way out of line with recent sales in the area. The two biggest pluses of using this system are that it is very quick, and it also costs a fraction of the price of a full appraisal, but there can be some downsides.
As mortgage lending has tightened up, many lenders have revised their underwriting guidelines and will no longer accept shortcuts, such as rapid value appraisals. You should check with your lender whether this is an option as it is certainly not universally approved.
An AVM does not involve an internal or external inspection of the home. It relies, instead, entirely on a math model of comparable sales and tax valuation information. This means it does not take into account any unique features of the house itself, whether these are positive or negative. Therefore it would be hard to say from a rapid valuation whether the sales price is truly fair, and it does not give you any negotiating leverage with the seller.
If the neighborhood in which you are buying has had foreclosures, these will be included in the comparables used by the rapid value appraisal. These kinds of low-priced distress sales will give a skewed idea of the true value of your property, and could affect your loan calculations.
If you are thinking of using a rapid value for a refinance on your home, you should only do this if you have considerable equity in the property, and your loan-to-value ratio will not be an issue. If your LTV is marginal, it’s worth paying more to get a full appraisal, just in case your refinance is held up by an inaccurate rapid value process.
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