How does a home appraisal work?
When you’re buying a home and require a mortgage, a home appraisal is a crucial step of the purchasing process. That’s because a home appraisal provides lenders with the current market value of a property, so they can justify the amount they’re lending to you.
What is a home appraisal?
A home appraisal is an estimate of the fair market value of a property, which is carried out by a licensed, third-party professional, called an appraiser. The appraisal takes place on behalf of the lender in a home sale but is an unbiased valuation, based on multiple factors, such as the home’s age, condition and location.
How does a home appraisal work?
Normally, the lender will order the appraisal in the home purchase process, but the buyer pays for it. In Canada, the Appraisal Institute of Canada (AIC) is the leading real property valuation association, with more than 5,600 qualified members, who can provide independent and impartial appraisals. On the AIC website, you can search for a real estate valuation expert by area.
The appraisal always takes place after an offer has been accepted, but before the mortgage has been finalized, since lenders rely on the evaluation to determine the loan. This means that if the appraisal comes in lower than the agreed-upon purchase price, the buyer may not be able to borrow the amount they require for the mortgage.
For this reason, the buyer’s agent will often recommend including an appraisal contingency in the purchase agreement. This gives the buyer the option to walk away from the deal if the appraiser’s market valuation comes in lower than the purchase price and the buyer cannot make up the difference with a larger down payment. This situation can also provide buyers with the opportunity to renegotiate the price, since the amount they previously agreed to pay is higher than the appraiser’s fair market value.
However, most lenders allow for an appeal of the appraisal, which gives the buyer or seller the right to challenge an appraisal if they believe it was inaccurate or incomplete. Either party (with the buyer’s permission) can talk to the lender about ordering a second appraisal at their own expense to see if the market value comes out any differently. Of course, there are no guarantees that it will.
How much does a home appraisal cost?
An appraisal in Canada usually costs the buyer between $300 and $600, but will vary and may cost more, depending on location.
How long does a home appraisal take?
The appraiser’s site visit, when they will assess the property’s interior and exterior conditions, will likely take between 30 minutes and a few hours. The appraiser will then compile a report, which they will typically send to the lender within a few days. Both buyer and seller have the right to ask to see a copy of the appraiser’s report.
What do home appraisers look for?
Home appraisers use multiple criteria to evaluate a property and come up with an unbiased and fair market valuation of a home. They will look at the property’s size, including the lot size, the home’s square footage, the number of bedrooms and bathrooms, and whether there’s crawl space, an attic or a basement.
They will also assess the age and condition of the home. They’ll be looking at the type of foundation, updates or remodels to the kitchen and bathrooms, the flooring, windows and appliances in the home.
The home appraiser will then use the information gathered at the visit, along with an assessment of local housing market trends and comparative sales in the neighbourhood, to generate an appraisal report. The report will include a description of the property and a home valuation, along with the appraiser’s rationale.
Home appraisal tips for sellers
- Work with a real estate agent who is knowledgeable about your market and can help you set a good price for your home, based on comparative sales. This way you are less likely to to sell your home for a price that’s wildly off its appraised market value.
- Make sure your home is clean and tidy for the appraiser’s visit, so that you know you are presenting your home in its best light.
- Make any repairs, like leaky faucets, as they will be factored into your appraisal and can add up quickly.
- Provide the appraiser with a list of renovations or updates, so that they can be factored into the price comparison.
- Ask to see a copy of the appraiser’s report from the lenders and make sure that the market comparisons take into consideration any factors that may make your home more valuable.
What is the difference between an appraisal and a home inspection?
An appraisal is used to determine the home’s market value. A home inspection looks at the property’s physical structure, including the roof and the foundation, to make sure it’s safe and functionally sound.
Houseful is here for your next steps
From getting your keys to getting back on the market—and all the days in between—Houseful is here to help you keep an eye on the big picture. Let’s see what’s possible and take the next step toward fulfilling your home ownership goals. Visit houseful.ca.
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