Understanding Automated Valuation Models

As mortgage originators, servicers, and capital markets participants face rising demands for speed, accuracy, and regulatory transparency, Automated Valuation Models (AVMs) have become an essential tool in the valuation ecosystem. AVMs streamline property valuation by leveraging vast datasets and advanced modeling techniques, enabling institutions to make faster, more data-driven decisions across the mortgage lifecycle.

This article outlines how AVMs function, evaluates their utility and limitations in institutional use cases, and highlights how advanced solutions like First American’s Procision AVM™ suite are transforming valuation accuracy and risk management in today's market.

What Is an AVM?

An Automated Valuation Model (AVM) is a statistical model that uses property and market data—such as recent sales, tax records, MLS listings, and geospatial factors—to generate an estimated market value for residential real estate. For lenders, servicers, and investors, AVMs provide instant valuation outputs that support:

• Loan origination and underwriting
• Collateral risk scoring
• Portfolio revaluations and mark-to-market
• Servicing QC and repurchase risk mitigation
• Capital markets pricing and securitization models

How AVMs Work

AVMs are designed to ingest and analyze data at scale. Most follow a four-phase process:

1. Data Aggregation

AVMs pull from:

• Public records (deeds, taxes, mortgages)
• Listing data (sold, active, and pending listings)
• Historical sales and appraisal data
• Geographic and neighborhood-level analytics

2. Data Normalization and Cleansing

Data is scrubbed for accuracy, outliers are removed, and attributes are normalized to ensure consistency across records—critical for supporting reliable automated valuations.

3. Modeling and Valuation

Models may include:

• Hedonic regression models, isolating value by property characteristics
• Comparative market analysis (CMA) models, comparing like-for-like properties
• Machine learning models, which self-improve through training on historical and real-time data
• Hybrid ensemble models, which blend methodologies for optimal accuracy

4. Output Generation

AVMs produce:

• Estimated market value
• Confidence scores, indicating reliability of the valuation
• Valuation ranges, useful for risk thresholds
• Comparable sales, adding transparency and auditability

Procision AVM: Built for Institutional-Grade Valuation

First American Data & Analytics’ Procision AVM suite is designed to meet the valuation accuracy, coverage, and compliance needs of institutional users—including banks, mortgage servicers, and investors. Below are some of the key differentiators of the Procision AVM suite of tools.

Blending Ensemble Modeling

Procision combines six sub-models (machine learning, hedonic regression, enhanced HPIs, and tax-based models) into a seventh-level meta-model. This ensemble approach boosts both accuracy and resilience across property types and geographies.

Daily Data Refresh

With access to 99% of U.S. property records, over 8 billion document images, listing feeds, and the most comprehensive proprietary spatial data on the market, Procision updates its underlying data and valuation outputs daily. This helps ensure real-time relevance.

Automated Quality Assurance

Procision’s AVMs are continuously monitored with automated surveillance that validates data and model outputs across market conditions. This helps institutions maintain valuation confidence under regulatory scrutiny.

Use Cases Across the Mortgage and Capital Markets Value Chain

Here’s how AVMs are typically used by mortgage lenders, loan servicers, and investors involved in capital markets:

1. Mortgage Origination & Underwriting

AVMs reduce cycle times by providing instant, data-backed valuations for lower-risk loans. When integrated into automated underwriting systems (AUS), they support rapid loan approvals and drive cost efficiency.

2. Servicing and Default Management

Loan servicers use AVMs to monitor collateral value over time, identify at-risk assets, and triage loans for further valuation review—critical for portfolio surveillance, loss mitigation, and REO management.

3. Capital Markets and Secondary Trading

AVMs support pricing of whole loan pools and mortgage-backed securities by providing mark-to-market valuations, facilitating faster execution in securitization and secondary trading environments.

4. Regulatory and Risk Compliance

Regulatory bodies increasingly expect data-driven justification for valuations. High-confidence AVMs like Procision enable institutions to maintain audit-ready documentation and meet AVM testing requirements under IAG, USPAP, and other frameworks.

Best Practices for Institutional AVM Deployment

To maximize the value and compliance of AVM integration, lenders, servicers, and capital markets investors should do the following.

Use AVMs as First-Level Valuation Filters

Deploy AVMs to identify low-risk properties for streamlined processing, reserving manual appraisals for edge cases.

Validate AVM Confidence Scores

Confidence scoring helps determine whether a valuation stands on its own or needs second-tier review.

Compare Multiple AVM Outputs

Running multiple AVMs or using ensemble AVMs improves confidence and surfaces discrepancies.

Monitor AVM Drift Over Time

Track valuation volatility as a measure of market risk or collateral instability.

Comply with Regulatory Testing Guidelines

Institutions must perform periodic AVM validations, including performance testing, geographic coverage analysis, and blind back-testing.

Why Capital Markets and Mortgage Professionals Choose Procision

With so many AVMs on the market, selecting the right one for your needs can be difficult. Here’s why so many professionals choose the Procision suite of AVM tools from First American Data & Analytics.

High Accuracy, Low Risk

By using ensemble learning, frequent updates, and rigorous QA, Procision delivers valuations that are both timely and regulator-ready.

Flexible Models for Specific Use Cases

From Procision Power and Procision Premier for underwriting, to Procision Direct for marketing and outreach, to Procision Rental for investment property targeting, the suite supports a wide range of institutional needs.

Built for Scale

Procision supports batch processing of millions of properties, making it ideal for servicers, aggregators, and securitization desks handling large datasets.

Start Leveraging Procision AVM for Smarter Valuations

In an environment where property value transparency, risk management, and speed are more critical than ever, AVMs—especially advanced solutions like Procision—are indispensable. Lenders, servicers, and investors leveraging Procision AVM gain a competitive edge with superior data coverage, modeling accuracy, and operational scale.

To request a demo or start a trial of the Procision AVM suite, contact First American Data & Analytics today.