What is a Home Appraisal?

By definition, an appraisal is ‘an expert estimate of the value of something.’ A Home Appraisal can be used when purchasing, selling or refinancing a home. It’s common for people to order an appraisal simply because they want to know the value of their home. To be an appraiser, you must be certified by the Appraisal Institute of Canada.


According to AIC, appraisers can also be of use when:

  • Renovating, building, buying or selling a property.
  • Financing or refinancing a property.
  • Making real estate investment decisions.
  • Reviewing property tax assessments.
  • Assessing capital gains.
  • Making a claim for insurance purposes – resulting from fire, rain, hail, windstorms and other disasters.
  • Determining or facing expropriation compensation.
  • Valuing property for matrimonial purposes, arbitration or other litigious matters.
  • Business mergers, acquisitions or dissolutions involving real estate.
  • Valuing private property acquired by governments for public use.

Appraisers use approximately 4 other comparables that are similar in location, size, and condition in order to determine the approximate value of the property. The Home Appraisers role is to determine the real value of a property at that time, based on comparable property and not on market conditions. They are required to deliver a fair and accurate estimated value of the property based on the information they have available to them.

 

When would you need a Home Appraisal?

As a Real Estate Agent, I see Home Appraisal’s requested most when someone is purchasing a home and is applying for a mortgage. The bank or lender will request an appraisal to guarantee the home is worth less or equal value than what the person is offering to pay for it.

The bank or lender is trying to avoid insuring a property that is worth less than the loan because the property acts as collateral in the case the purchaser defaults. They need to be able to sell the property for equal or more value than of what the loan is.

The Home Appraisal usually happens mid-transaction when you are applying for financing and the lender makes the appraisal a requirement in order to get approved for the mortgage. It’s out of the real estate agent’s and the mortgage associates hands. Unfortunately, we have ZERO say when it comes to what the lenders want. The lender can set conditions that you have to fulfill in order to obtain the mortgage.

Providing a letter of employment, Notice of Assessment, or providing three most recent pay stubs are a few usual requirements and unless you can provide these things to their satisfaction, they will not grant you approval for financing.

 

What’s the difference between a Comparative Market Analysis and a Home Appraisal?

CMA’s are done by Real Estate Agents and Home Appraisals are done by certified Home Appraisers. The job position is a big difference. Both parties will try to achieve the same value. They have the same source of information. Below is a list of qualities both parties will take into consideration when performing the analysis:

   Style of home
   Square footage of the home
   Square footage of the lot
   # Bedrooms
   # Bathrooms
   Finished basement vs unfinished basement
   Garage vs no garage
   Quality of the finishes
   Age of windows, roof, furnace, flooring, kitchen etc.
   Overall condition of the home
   Upgrades
   Location (your neighborhood & street)

 

What does it mean if the CMA and Home Appraisal arrive at two different values?

A Real Estate Agent and a Home Appraiser should come to the same value. The same home could be valued differently by two different professionals because they have different opinions of value. Either professional could think a 5,000 sq. ft. lot is of equal value to a 4,000 sq ft lot, or that a 5 ft. granite counter top is equal value to a 10 ft. laminate countertop. Both examples are points that could be debated but it does come down to the opinion of who is providing the home appraisal or CMA. There is no universal book stating what A, B, and C are valued at. It would make things a lot easier if there was! This is why experience, caution and due diligence are really important when it comes to appraising a property.

How much does a Home Appraisal cost?

Real Estate Agent = $000

Home Appraiser = $250-$1000

A Real Estate Agent cannot charge money for services outside of being paid in a sellers brokerage or offer to purchase contract. Appraisers have their own rates. Appraisals aren’t only used when valuing residential homes, they are used when valuing wide ranges of property such as agricultural or commercial.

 

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