Call me a party pooper but I’m worried about AVMs

From Danny Lovey

At the risk of being branded a party pooper regarding the benefits of automated valuation models which are being so wildly and arrogantly proclaimed in some quarters, I keep asking myself – what is this uncomfortable feeling I have about them?

Am I a dinosaur who cannot move with the times? No. I make the most of technology and will always take the electronic application route where I can, so what is my problem?

Is it to do with wondering what’s best for my clients? Maybe that’s it. Are they ever right for my clients and if so, under what circumstances? With some forecasters saying AVMs will be used in up to 60% of all mortgages in two years’ time, I think we should be asking if AVMs are in the long-term interests of our clients.

If I have a client who is remortgaging, only moved into their home re-cently and needs a relatively low LTV I don’t have a problem with AVMs. After all, many remortgage surveys are drive-bys.

But I would have a problem if the AVM produced a property price that denied my client the opportunity to get the most competitive remortgage, when they might have spent time and money on improving their property and this is not reflected because no valuer has seen it.

But it’s when it comes to purchases that I have a problem. The only cases where AVMs might be OK is when it is a leasehold property and a client is not bothered about a valuation, even if I advise them to have one.

I get worried about freehold property and am concerned about the value of AVMs for lenders that could end up with a dodgy back book blowing a hole in their risk management systems. But more importantly than that I am concerned for my clients.

How can I tell a client that an AVM is OK if it’s only a faster and more efficient way of getting a lender the valuation it needs?

Also, without a survey looking at the property professionally, how can a rebuilding cost be calculated – unless you go for the blanket cover option which rules out many insurers?

The overwhelming feeling I have is that if a lender only does AVMs it would be poor not to strongly advise a client to have a traditional mortgage valuation as a minimum.

Indeed, in many cases I will st-rongly advise at least a home buyer survey even if the property is relatively new. Why? Because the price is cheap relative to the client buying a pup of a property and regretting it for the rest of their lives.

I can’t see any circumstances in which I would not recommend a personal visit to such a property by a qualified surveyor.

Having said that, I will then have to price into the costs paid for the mortgage an additional valuation fee for having a professional surveyor visit a property, which it could be argued would put those lenders only offering AVMs at a commercial disadvantage compared with those that offer a mortgage valuation as standard

I wonder if all this talk of AVMs for purchases goes against some of the FSA’s principles. How about ‘due care, skill and diligence’ or paying ‘due regard to customers interests’?

I can’t be the only person to argue that this form of valuation could lead to a mis-selling claim when a problem with a property is discovered that would have been spotted by a professional surveyor.

Think about it, on the basis that an AVM has not been properly explained to a purchaser and that the AVM was used only for the benefit of the lender, who has not taken due care, skill and diligence and paid sufficient regard to the customer’s interests?

While I am sure the debate on this subject will continue, in the meantime maybe all lenders that are wildly en-thusiastic in promoting their AVMs should display the following at the top of all their literature for new purchase mortgages – caveat emptor.

Danny Lovey
The Mortgage Practitioner