Appraisals are a valuable part of the real estate transaction and they are different than a market valuation provided by a real estate professional.
- What is an appraisal?
An appraisal is an unbiased estimate of what a buyer might expect to pay (or a seller to receive) for a parcel of real estate. It is basically an analysis of sold properties around your area to determine the value of your home right now. Most lenders will accept an appraisal if it is done within the last 30 days. Appraisals are also used frequently in mortgage refinances to determine the homes current value as this will impact the maximum mortgage amount you can access as you can refinance to a maximum 80% of your appraised value.
- What do appraisers do?
An appraiser is the professional with recognized accreditation who will provide an educated opinion on quality, value and utility (use) of a specific property. They use their experience and knowledge of the local real estate market to arrive at a fair market value.
- How are appraisers qualified to make valuation decisions?
Appraisers must complete a university or correspondence course in order to obtain an appraisal designation. These courses can take up to 4 years to complete.
Appraisers, like mortgage brokers, must comply with rules set out by an associated governing body. Appraisers are governed by one of three professional associations: the Appraisal Institute of Canada (AIC); the Canadian National Association of Real Estate Appraisers (CNAREA); and Ordre des Evaluateurs Agrees du Quebec (OEAQ). The function of these associations is to provide professional standards and educational requirements that appraisers must meet and maintain in order to be in good standing.
- Where does an appraiser get the information used to estimate home equity value?
One of the Appraiser’s main roles is to gather information that aids in determining the current value of a property. There are basically 2 types of data they are looking for, specific or general.
Information specific to the property is gathered from the property itself- location, condition, amenities and size. This information is collected when the appraiser views your property.
General Information is gathered from a number of sources and this data is used to compare to your homes data. Some sources appraisers use include, but is not limited to:
-The local MLS data on current listings and recently sold homes that might be used as comparable sales and provide a sense of what the market is paying for similar homes in your neighbourhood;
-Tax records and other public documents for verification of actual sale prices in a market; and
-In addition and most importantly, the appraiser leverages general data from his/her past experiences creating appraisals for other properties in the same market.
- Who actually owns the appraisal report?
My favorite question; the appraisal report is owned by the financial institution, which is the institution that requests the appraisal report. While the borrower may pay for the report, the lender retains the right to use the appraisal report or any information contained within. If the appraisal report is not addressed to the lender requesting it, you could be charged for the appraiser to generate a letter of transmittal allowing your potential lender to use the report.
- What should I have available for the appraiser when they come?
If available, please have the following documents ready:
- Recent Property Tax Assessment Bill
- A survey of your property; and
- If renovations have been completed, a list of renos and costs to complete them
- What are the steps of the appraisal process?
> Setting the appointment: Expect a call from the appraiser within 24 hours to set up a time to inspect your property. Usually your mortgage professional orders the report and provides the appraiser with your contact information to arrange payment for the report.
> Property inspection: The inspection of the property should take approximately 15 to 20 minutes to do. At the inspection, the appraiser will ask questions regarding the property such as its age, recent updates and perhaps age of the roof. In most cases, the appraiser will be required to take photos of the interior and exterior of your home as well as your neighbourhood.
>Completing the report: Once the appraiser returns to their office, data collection regarding the subject property continues. The appraiser will do an extensive review of MLS information in an effort to find the most appropriate comparable sales to establish market value. They will also collect other information in order to make any adjustments to the value, for example, if your house has a double garage and one of the comparable properties only has a single garage. Once all the information regarding the subject property and the most appropriate comparables is obtained, the appraiser reconciles the information in their report to arrive at a well reasoned final value of your property.
>The final report: Once complete, the appraiser will send a copy of the report to your lender as per their request. You may or may not receive a copy of your appraisal report, talk to your Mortgage Professional to find out.
- When are appraisals required?
A Lender can technically request an appraisal no matter what type of mortgage financing you’re looking for. Based on my experience, lenders almost always request an appraisal in the following scenarios;
– Private Sale (when property you’re purchasing is not MLS listed)
– Family-to- Family sale/purchase
– Purchases with a 20% downpayment or higher
- Are there alternatives to obtaining an appraisal?
Some lenders will use an “Automated Valuation System” to determine the property value in lieu of an appraisal, though not all lenders offer this service. This is commonly used when transferring your mortgage at renewal to a new Lender.
- How much do appraisals cost?
Residential appraisals can range from $325 and higher depending on the location and type of property. Commercial appraisals are much more detailed and cost much more.
As always, the Mortgagegirl is here to answer any mortgage questions you may have or, we can always refer you to one of our trusted appraisers. Call 780.433.8412 or email info@mortgagegirl.ca. Stay in the loop by following on Twitter @mortgagegirlca
