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When and how to get a house appraisal in Ontario

by Corben Grant on 17 May 2022

With all the talk about house prices, have you ever stopped to wonder just how exactly home prices are actually determined? On a foundational level, we know that land itself has some inherent value due to its scarcity. Then there is the impact of the market where similar houses are compared at price against one another as they fluctuate in value. But, without just guessing based on the market, how can we tell what a house is worth?

Houses are made of many different materials, each in varying proportions with their own fluctuating commodity prices. This is without even mentioning material factors like the cost of labour to build a house and the value it provides as a residence. All of these contribute to the final price that a home is said to be worth.

The process of determining a home's value is called appraising and home appraisals are crucial to the real estate market. Despite all the complexities of appraising a home's value, it is something that must be done in order to make sure homes are selling for fair prices based on what they have to offer so all sides of a transaction can reach an agreeable deal.

If you are planning on buying or selling, it is important that you understand how appraisals work and when is the right time to get one. Home appraisals also play an important role when deciding on refinancing your mortgage or taking out a line of credit.

What is a house appraisal?

A house appraisal is simply a process of determining what a home is worth in a financial sense. That may sound simple on its face, but there is a lot more that goes into a home appraisal than just deciding on a number.

Home appraisals are conducted by professional appraisers. This is a very important fact about appraisals as it is primarily what gives an appraised value its validity and authority. Anyone can simply put a made-up value on a home but an appraiser's job is much more complicated. Appraisers are professionally trained and unbiased towards the sale, meaning they are not affiliated with any particular parties involved and are rather concerned with determining a true and accurate figure.

Home appraisals play an important role in many facets of real estate ownership. After all, if you own real estate assets, you will need to know exactly what that asset is worth. Until you do that, it’s hard to access that value either through a sale of the property or as collateral for borrowing.

There are many ways that a home's appraised value is used. In real estate transactions, it helps buyers and sellers determine how much the home should sell for. For financial institutions, it can help determine how viable a mortgage loan is by knowing how much collateral a home represents on a loan and making sure a borrower is not overpaying for a mortgage they are entering into. Banks will also want to know your home's appraised value for the purpose of mortgage refinancing.

What appraisers do

As mentioned before, appraisers are professionally trained experts in determining a home's value. The need for a professional appraiser is necessitated by the fact that assessing a home's value can be an extremely complicated process and one that everyone involved wants to be sure is completed correctly.

When you hire an appraiser, the first step will be for them to visit and assess your property. When inspecting a property, an appraiser will focus on a number of different factors which may include:

Amenities

The amenities of a home essentially include all of the things that make up the building itself. This includes things like the size and number of bedrooms, bathrooms, and living areas. It may also include the finishes and materials used in the construction since premium materials will be worth more. They will also consider things like the home's utilities and appliances, the state of repair of the home, the size and condition of external features like the yard, roofing, parking, and more.

Location

Another important factor (and one that ties into the next couple of factors) is the location of the home in question. Different areas will be more desirable to buyers of different types and will affect what they want to pay. For example, a neighbourhood with schools, recreation options, and shopping, will be very popular with families and will help increase the home's value.

The property type plays a role as well. If you build an apartment complex in the middle of nowhere, this would negatively affect the appraisal as the location does not match up with the property type and buyer profile. This isn't to say that rural areas are all bad; a farm or recreational property in a more rural area may be seen as a plus. It ultimately comes down to how well the property and its features go with its surrounding area, and in turn, how in-demand it may be with buyers.

Comparable properties

Though the actual house itself and its location can give the appraiser an idea of the value, it’s also important to consider the other homes in the area. Appraisers will look to nearby homes that have similar comparable features in order to help give them an idea if they are on the right track for their appraisal. If they see many similar homes selling for more than they would expect, they may choose to adjust the price they have appraised in accordance. By looking at the prices at which other homes have actually sold, an appraiser working for a seller can be more sure that the home will actually sell at the appraised price while achieving the highest value for the seller.

Trends in the real estate market

On a broader level, overall market conditions can also play a role in real estate appraisal value. If a certain property type or amenity is growing in popularity, an appraiser may raise the appraised value of the home accordingly. If a home exists in a strong buyers market, an appraiser may opt for a lower value to reflect that.

Once your appraiser has taken all these factors into account, they will provide an appraisal report detailing the home's appraised value and explaining how they came to the final figure.

How do I know if an appraisal is correct?

At times, a situation arises where an appraised value does not seem agreeable to the buyer, owner, or seller of the property. If, for whatever reason, the appraiser failed to take into account any number of different factors, this could result in a home being above or below what may seem reasonable. In this case, you have a few options.

You can speak with your real estate appraiser and point out any factors they may have missed and see if it helps them to reassess their figure. Though appraisers are professionals, mistakes can happen and it's worth pointing them out. However, your appraiser ultimately knows best and may still remain firm on their estimate.

You also always have the option of working with a different appraiser. Perhaps you can explain to them your disagreement with a previous appraiser. Keep in mind again that appraisers are meant to be unbiased, meaning they won't simply give you a higher number if you ask. In fact, you may consult a different appraiser and find that the resulting figure is even more off the mark than your initial figure. Such is the risk you take.

What is a current market assessment?

A current market assessment (CMA) is a similar but distinct process from a house appraisal. A CMA is a means for determining a home's fair market value through an analysis of recently sold comparable homes. A CMA is not an official appraisal as it is not conducted by an appraiser, rather, it is usually offered by real estate agents when listing a home. Often, a CMA is the first step in listing a home with a real estate agent whereas an appraisal may be taken closer to the end of finalizing a purchase deal.

When do I need to get a home appraisal?

The most common time that you will need to get a house appraisal is when buying a home. After the buyer has put in an offer and had it accepted, the appraisal is one of the key steps of the closing process.

Essentially, if you are buying a home with a mortgage, a bank is putting down a significant amount of money to allow you to do so. Part of their due diligence process when approving a mortgage is to verify the value of the home before you buy it. In this case, it may fall to the buyer to organize an appraisal, however, the lender will often take care of this process and even cover the costs. If the appraised value is equal to or greater than the contract price, the lender will proceed with the mortgage without issue.

If the lender finds the appraisal to be too far below the contract price, the lender may be forced to reassess the mortgage and adjust the borrowing amount. In this case, a buyer may also be able to use the lower appraisal as a negotiation tool to achieve a lower price, otherwise, they may need to cover the difference in the price.

For sellers, it’s possible to get an appraisal before selling to determine a suitable list price, though they may also simply opt for a CMA.

Another case when you will need to get your home appraised is if you are looking to refinance your mortgage. Your lender will need to determine the new value of your home after appreciation in order to recalculate your mortgage. This can also cause difficulty if your home has decreased in value as the bank will find the refinance to be too risky to proceed with.

How to get an appraisal

As mentioned above, you may not even need to get an appraisal yourself if your lender takes care of it. However, in some cases, it will be your responsibility to hire an appraiser. There are many appraising businesses on offer so you can simply do a search for ones in your local area. Though it may be simple to find an appraiser, here are some important tips to keep in mind:

Only work with licensed appraisers

When working with an appraiser, be sure to verify that they are properly licensed to conduct the work they are doing. The result that they come to can have a huge impact on how much your home sells for so it’s important that they know what they are doing.

Both the Canadian National Association of Real Estate Appraisers (CNAREA) and the Appraisal Institute of Canada (AIC) are responsible for licensing and certifying appraisers in Ontario and other provinces and can provide you with a search of their registered appraisers.

Don't wait too long to book an appointment

The second tip is to make sure you pay attention to how soon you need an appraisal. In the last few years, real estate sales have hit record numbers in some areas and every sale needs an appraiser to follow through. This means the appraisers often have a wait time before they can get to your home. If you wait until the last minute, you may be out of luck and unable to get an appraisal in time which can put a major hitch in your plans.

Make small changes to improve your home's appraised value

Finally, if you want to make sure to get the best-appraised value, there are some things you can do that can make a big difference in your final appraisal. Some common ways to increase your home's potential appraisal include selling at the right time to take advantage of market trends, taking care of needed repairs or conducting renovations and improving the curb appeal of your home by fixing roofing, grooming your lawn, and working on landscaping and decoration.

Conclusion

If you are going to buy or sell a home, you will likely need to get an appraisal at some point. Appraisals are a highly important tool in our real estate market and are beneficial to almost all parties as it ensures that everyone agrees on the value of what they are exchanging. Knowing how appraisals work can help your real estate transaction go quickly and easily and for the best price.



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