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The role technology plays to help reduce property valuation costs

AVMs and digital property valuation solutions deliver speed, accuracy and cost savings

John Holbrook | Senior Manager, Product Management, ICE Valuation Analytics
March 6, 2025 | 5 mins

Traditionally, when it comes to home equity loans and lines of credit (HELOCs), lenders have relied on full appraisals, drive-by appraisals, automated valuation models (AVMs) with a drive-by property condition report (PCR) or even tax assessments to determine the property’s value. Further, the cost of obtaining a property valuation for home equity products is not typically passed to the borrower, it is instead absorbed by the lender.

Today there are new, more efficient, credible and reliable options when it comes to property valuation. AVM waterfalls/cascades or condition-adjusted AVMs accompanied by a digital property condition report can help streamline and expedite the property valuation process for low-risk loans that do not require a traditional valuation product.

Interagency Guidelines (IAG) set the expectations for lenders and how they manage collateral risk for home equity loans. For loans under $400K, IAG advises that AVMs can be used as the primary valuation method, so long as the property’s condition is also known. AVMs can also be used to provide a more cost-effective and faster, mortgage preapproval to borrowers, validate traditional appraisal results or address appraisal disputes.

AVMs combined with other technologies, like mobile property valuation solutions and condition-adjusted AVMs, can also help lenders support IAG’s guidance for property valuations.

What are AVMs?

AVMs estimate the value of a property by analyzing a broad range of property data, real estate sales data, public records information and local market trends using statistical models. Each AVM is built upon a certain data set with its own calculation method (model).

Other than using a single AVM to obtain a property value, lenders can look to using a solution that uses multiple AVMs, each with its own mathematical model that has been adjusted to minimize error rate and provide the greatest degree of confidence in the results.

These solutions — often referred to using a waterfall or cascade approach — provide a confidence score to indicate how much agreement there is between multiple AVMs for the subject property’s value. A higher confidence score means that different models agree and therefore the estimate is considered more accurate.

Using AVMs for home equity lending

Lenders can use AVMs to help reduce costs and obtain quicker property values during home equity lending for select types of properties. Home equity loans and HELOCs are typically used for residential single-family homes and condos that are primary residences. Each lender has their own criteria to determine eligibility based on their risk tolerance and regulatory obligations.

A sound collateral risk policy will leverage an AVM along with a matrix of factors such as loan-to-value ratio, AVM confidence score and property condition rating to determine if the results meet risk tolerances. In cases where higher risk has been identified, the process should move forward with a desktop appraisal or full appraisal when deemed necessary.

What about property condition?

Lenders can also leverage a condition-adjusted AVM, which is included in ICE’s Validate for home equity lending. Validate enables the borrower to capture photographs of their property in a controlled and secure mobile solution and then leverages computer-vision technology to identify the property’s condition and features. The property’s condition rating is then applied in ICE’s condition-adjusted AVM to calculate a property’s value in near real time.

Streamlining appraisal dispute resolution

AVMs can also be used to help address disputes that arise regarding a property’s value after a traditional appraisal has been completed. These questions are often initiated by the borrower in a reconsideration of value (ROV) request.

In these cases, lenders can leverage AVMs and mobile property valuation applications to either justify the original appraisal results or negotiate different outcomes with the original appraiser by providing additional data. Using digital valuation solutions to support ROV requests helps eliminate the costs of ordering a second appraisal in many cases and keeps the loan process moving.

Additional benefits of using AVMs

In addition to the cost savings from using AVMs, there are many other benefits including:

  1. A streamlined application process
  2. Scalability for high volume processing
  3. Faster approvals for borrowers
  4. Enhanced risk management due to objective, data-driven results
  5. Consistent valuations across the mortgage lifecycle
  6. Quicker resolution of appraisal disputes
  7. Frequent market updates to reflect current conditions

Get started using AVMs and valuation technology

Lenders can easily integrate AVMs into their existing workflow to streamline loan origination and help reduce appraisal costs. The first step is to select an AVM provider that combines quality data, valuation expertise and proven/tested models. Lenders can work with their AVM partner to establish policies and procedures to determine how AVMs should be used and evaluated on an ongoing basis.

ICE offers a wide selection of high-performance AVMs and digital valuation solutions that deliver optimal hit rates and accuracy, enabling lenders to best support their customers.

Read our new eBook, How to grow a successful home equity business, to learn more.

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