Corporate Settlement Solutions (CSS), an Ohio-based full-suite provider of real estate settlement solutions, recently released results from its mid-year analysis of the types of valuation products that lenders are using to originate home equity loans. It found a significant increase in the use of AVMs.

The CSS Home Equity Valuation Analysis reviews full loan portfolios for 19 lenders within the CSS footprint to track lender preferences for five types of valuation products that include AVM model/property condition reports, appraiser-valued hybrids, full appraisals, non-appraiser-valued hybrids and drive-by appraisals.

In the first half of 2024, CSS clients used AVM model/property condition reports on 35 percent of their home equity loans, representing a year-over-year increase of 20 percentage points compared to the first half of 2023 when this product type was used only 15 percent of the time.

It’s the only product category among the five that had an increase. Appraiser-valued hybrids were the second most-frequently selected valuation model at 25 percent (down from 34 percent), followed by full appraisals at 17 percent (down from 21 percent), non-appraiser-valued hybrids at 11 percent (down from 17 percent) and drive-by appraisals at 11 percent (down from 13 percent).

Home equity lending is expected to increase over the coming years, according to CSS, given record equity that American homeowners have amassed due to historically high home price increases since the pandemic.

According to industry estimates, homeowners with mortgages have an average of approximately $300,000 in home equity, about $200,000 of which is “tappable” or available to the homeowner. Because home equity lending is typically a no- or low-cost offering by most lenders, AVMs have grown in popularity as a fast, efficient and inexpensive way to value properties for home equity loans and home equity lines of credit. 

“Our analysis shows that lenders are increasingly tapping into the benefits, from both an economic and time-saving perspective, of using AVMs combined with property condition reports,” CSS CEO Ashley Jelinek said in the release.  “The industry is expecting a significant uptick in home equity lending since so many homeowners have high levels of equity and are reluctant to refinance their ultra-low-interest first mortgages. Homeowners will want to tap that equity while they can for home improvements, expansions and other big expenses such as college.

“For lenders, the home equity lending equation works when they can rely on accurate, but also fast and inexpensive, valuations for these loans,” Jelinek added.