Have you ever wondered how much your property’s value has changed since you purchased it?
Home appraisals can play a big role. Following is a breakdown of the appraisal process – what it means, when it happens, and other important factors you need to know.
What is a home appraisal?
An appraisal is a process to determine how much money a property is worth. It sounds simple in theory, but a lot goes into determining the appraised value of a piece of real estate. Valid appraisals must be conducted by a licensed appraiser. This is a third-party professional who is unbiased towards the sale. Typically, the appraisal is ordered by your bank or mortgage lender.
The first step of any appraisal process is making an appointment for an inspection. The appraiser will look at several factors including the property, current real estate market, and location of the home.
The property itself
Your appraiser will want to look inside and outside your home to determine what amenities are available and the condition of the property. They’ll note the number of bedrooms, bathrooms, and living areas. They will look at what kind of appliances are in the home, as well as the finishes and materials used to build the home. They’ll also consider the exterior of the home. For this they will note the size and condition of front and back yards, the number of parking spaces, and the health of the windows, siding, and roofing.
The current real estate market
The value of properties fluctuates over time, so overall market conditions also play a role in real estate appraisal. Your appraiser will look at the value of similar properties nearby to get a better idea of trends more specific to your local market.
Your home’s location
The value of a home isn’t just about the structure itself. It is also influenced by what’s around the home and how the property fits with the surrounding structures. For example, nearby parks, schools, retailers, and other amenities can affect property value.
When do I need an appraisal?
You can hire an appraiser to look at your property any time if you’re curious about its value. However, there are two main reasons someone would want their home to be appraised.
- When buying or selling a home
Purchasing a home is one of the top reasons appraisals happen. The value of your home will affect your property tax and mortgage. Banks and mortgage lenders often require appraisals as part of their due diligence. They are taking a risk by lending you money so they want to verify the value of a home before approving a mortgage. If you purchase a home for a price much higher than what the home appraisal comes in at, lenders are unlikely to finance it or may require you to make a larger down payment. Typically they will only lend on the appraised value of the home, not on the purchase price. While it’s often the bank or lender that orders an appraisal, the cost may fall on the buyers. Typically, the cost of a home appraisal in Canada is between $300 and $600. The price of an appraisal depends on how large the property is, where it’s located and whether it’s considered a luxury home. Luxury homes are typically very large homes with high-quality finishes.If your appraiser has to spend more time travelling to your home or assessing its value on location, that can add to the cost.
Pro tip: Larger banks and brokers sometimes cover appraisal costs, so don’t be afraid to ask about this possibility!
If you’re looking to sell your home, it’s best to speak with your REALTOR®. She/he can provide you with insights into the current market conditions that may affect the value of your home.
- When refinancing your mortgage
Refinancing your mortgage can be beneficial if you would like to secure a better interest rate. Some refinances require a home appraisal to determine if the current balance of your mortgage is more than the property’s value. Your bank or lender may call for an appraisal in order to ensure its worth is enough to secure your new loan. Not all refinances require an appraisal, so make sure to talk to your bank or lender to see if it’s necessary.
What’s the difference between appraised value and market value?
Market value is typically determined through a comparative market analysis (CMA). It is the estimated value of a home. It is based on an analysis of comparable recent sales in your market and what buyers are willing to pay for the property. A home appraisal is based strictly on the physical features of your home or property. CMAs usually happen at the beginning of the selling process and are conducted by your REALTOR®. As well as looking at current listings and sales, your REALTOR will look at many of the other details as the appraiser. An appraisal usually happens as part of the closing process and is conducted by a licensed appraiser.
Remember, these values are not always the property listing price. The appraised value is based on the objective assessment of a licensed professional. The market value is what buyers are willing to pay and sellers are willing to sell for. If you are selling, your REALTOR® can provide you with a CMA to help you determine a listing price. They also have access to the MLS Home Price Index (HPI). This is the most advanced and accurate tool available to gauge a neighbourhood’s home price levels and trends. It is exclusive to REALTORS®.
The information discussed in this article should not be taken as financial or legal advice. This article is for informational purposes only.