During my mortgage loan application process, I was given three or four different valuations. What do all the different valuations mean?
In general, any valuation compares the home you are trying to buy or refinance with sales information on similar homes from the same area.
A valuation is an estimate of the amount of money a home may be worth.
The valuation will also be based on information about the home including square footage, the number of bedrooms, bathrooms and the year it was built. Valuations may also use information like tax assessments and sales information for the housing market in your area.
When you buy or refinance a home, your lender will get at least one and sometimes more valuations. No matter where the values came from, your lender is required to give you copies of each valuation that they have. Those valuations could include:
- An appraisal done by a licensed real estate appraiser who does a full inspection of the property. This is the most common type of valuation. Appraisal values are generally determined by making adjustments between the features of your home and comparable local property sales (which are called comps for short).
- A Broker Price Opinion, or BPO, which is an estimate of value provided by a real estate sales professional. A BPO is most commonly used to justify a homes listing price.
- An Automated Valuation Model, or AVM, which is a computer-generated value that uses mathematical models that compare information about the house you want to buy number of bedrooms, bathrooms, square feet, etc. - with recent sales figures and other information about the housing market in your area.
Your lender may get an AVM when you first submit your loan application, just to make sure that the property value is in the right ball park. Later, the lender may require a full appraisal by a licensed real estate appraiser. Each of these valuations may be different because they are estimates and may be based on different comps or may have been completed at different times or for different purposes. If there is a big difference between the different valuations, your lender will have to decide which value it finds more reliable.