Automated Valuation Modeling (AVM) is a term given to home price estimation and utilizes statistical or mathematical applications to assess the value of real estate in moments; single-family residences and condominiums are the subjects of these high-speed estimates. At present, there are some fifteen models, and perhaps a few more, that exist in the United States. Most of these applications have been in the market for a minimum of seven years and some, for as many as twenty years. They have been used by the mortgage lending industry as a means to understand values so that lenders can 1) save some of the costs related to appraisal and 2) manage the risk of all of the loans that they originate or sell into the investor market. In other words they want to manage their risk and use automated information tools to help them streamline their process.

In conducting their tests, lenders most often use a sample of their own "closed loan" portfolio and also a sampling of closed sale transactions from publicly recorded data. What better way to validate the accuracy and the "hit rate" of the models? Accuracy relates to how far the AVM estimate is from the actual transaction amount. It would extremely rare that a model would predict the exact price of the prior sale since it analyzes so much information to make its estimate. The variance in the actual sale price or appraised price and the AVM result is measured on each property. Hit-rate is a measure of how many times the model is able to come up with a value estimate. There are a few major factors that determine hit rate.