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How Home Appraisals Work in Canada

October 20, 2022

Home Appraisal Process in Canada.

What is a Home Appraisal?

A professional appraiser conducts home appraisals to find the home’s value. A home appraisal report is unbiased and accurately represents the home’s condition, location, and neighbourhood. A licensed appraiser produces a property appraisal based on an in-person inspection, using recent comparable sales, current market trends, and aspects of the house such as amenities, floor plan, the lot on which it sits, etc. An appraisal is always included when your mortgage involves buying, refinancing, or selling a property.

Why is a Home Appraisal Important?

Mortgage lenders request a home appraisal to ensure a property’s purchase price reflects its fair market value and to determine whether to loan the money needed to purchase a house. In addition, an appraisal protects a lender from lending more money than a home’s value because the home is collateral for the mortgage.

If the borrower defaults on the mortgage and goes into foreclosure, the lender may sell the house to recoup their money. Therefore, a real estate appraisal helps the bank protect itself against lending more than it might be able to recover in this worst-case scenario.

An Overview of the Home Appraisal Process

The mortgage lender usually requests an appraisal because it is in their best interest. However, a home appraisal can cost several hundred dollars, and the buyer typically pays this fee as part of the closing costs of the home-buying transaction. As per the Appraisal Institute of Canada, a qualified appraiser should be licensed or certified and be familiar with the local area. In addition, the home appraiser must be impartial and have no direct or indirect interest in the transaction.

What is a Home Appraisal Based On?

The value of your home depends on the following factors:

Amenities and other aspects – The home’s square footage, the number of bedrooms and bathrooms, and the quality of fixtures, utilities, and appliances. Home appraisers look at the exteriors, such as the home’s structure and construction type, and note any conditions that adversely affect the property’s value.

  • Comparable Property – Appraisers look at recent sales of similar homes in the area to compare the property’s value.
  • Home’s Location – The local neighbourhood and the amenities available, such as public transit, schools, and safety standards.
  • Market Trends – The real estate market’s economic and social trends impact the value of your home. For example, excess sellers and fewer buyers can dampen prices in a buyer’s market. On the other hand, extra buyers and fewer homes push the prices up in a seller’s market.

An Appraisal Report

In Canada, an appraisal report produced by a professional home appraiser must follow the framework laid out in the Canadian Uniform Standards of Professional Appraisal Practice (CUSPAP).

Types of Reports

Appraisal reports can be concise or narrative. A Form Report is brief and is used when a quick turnaround time is essential. In such cases, an experienced appraiser must conduct the home appraisal because there is no room for errors. A short or full narrative Report provides the conclusion about the property’s value based on observations. In addition, the narrative report should fully describe the investigation, the analysis, and the presentation of the market value estimate.

The report also includes market sales, land, and public tax records that the appraiser requires to determine the property’s fair market value.

  • Uniform Residential Appraisal Report

A Uniform Residential Appraisal Report is one of the most common real estate appraisal forms. However, this is used only for estimates of single-family homes, not condos or manufactured homes.

The report must include the following information:

  • An interior and exterior appraisal inspection of the property.
  • A street map showing the property’s location and the comparable properties the appraiser used.
  • An exterior building sketch of the improvements indicating the square footage.
  • Clear, descriptive photographs of the property and other similar homes.

Home Inspection VS Home Appraisal

Inspection examines the home’s physical condition, from roof to foundation, to ensure that things are in working order. A home inspector cannot calculate a home’s value. On the other hand, home appraisers look at the property, the locality, and nearby comparable sale prices to arrive at an overall deal. However, a home appraisal does not always accurately reflect the house’s condition.

How Long Does it Take for a Home Appraisal?

The home appraisal process takes about seven to ten days to complete. First, home appraisers visit the property and inspect the interior and exterior. Next, they measure the square footage and evaluate the home’s amenities and fixtures. In addition, appraisers look at comparable homes that have recently sold.

The appraiser will not just walk through your house and examine every room; they will also take pictures. You do not have to accompany them during the entire on-site inspection but should be willing to answer any questions about your property. Once the physical examination and comparison are complete, a report is presented, including details such as how the appraiser determined the home’s value and other factors considered. The time it takes for the entire process depends on the complexity of the appraisal and the appraiser’s workload or schedule.

What Does a Home Appraisal Cost?

In Canada, a home appraisal usually costs between $300 to $600, and the buyer or borrower pays the appraisal fees. The home’s location, size, and condition influence the cost, though appraisers usually work on a flat fee or hourly basis. Appraisers expecting to be paid a percentage of the home’s value are frowned upon, as this can set wrong precedents.

What Lowers a Home Appraisal?

The location of your home is a huge influencing factor that can lower a home appraisal. For example, the assessment will be on the lower side if the house is in an undesirable neighbourhood, next to a junkyard, power lines, or on a busy street.

And How Do You Improve It?

You can make renovations and improvements to get your home’s best possible value and a higher asking price. Some other home appraisal tips to avoid a low appraisal are

  • Increase the property’s curb appeal
  • Make sure the house is clean and tidy
  • Take care of any broken appliances, minor repairs, and regular maintenance.

Do your research about similar homes sold in the vicinity before setting up an appraisal appointment with a licensed appraiser. Your local real estate agent can help you with this information.

Additional Points You Need to Know 

In a real estate transaction, if the home appraisal value is equal to or above the agreed-upon price in the purchase agreement,  the home purchase proceeds as planned. However, if the appraisal falls below the contract price, it delays closing until the borrowing amount is sorted out.

As a Buyer

You may have an advantage as the buyer, using the low appraisal to convince the seller to settle for a lower purchase price. However, remember that the bank won’t lend you more than the home’s appraisal value, and you may be forced to increase the down payment to proceed with the deal.

As a Seller

A low appraisal is not good news for home sellers; you may have to lower your home’s asking price since no one would like to overpay for a home. In addition, the buyer’s lender may not approve the mortgage and may back out of the deal, especially if they have an appraisal contingency. Finally, your home’s appraised value may be low due to recent foreclosures or distressed sales in your neighbourhood – when a property is quickly sold due to external financial reasons. In such cases, you can convince the appraiser that your home is worth more if it’s in significantly better condition than those properties.

As a Refinancing Homeowner

An appraisal lower than the outstanding mortgage amount will prevent refinancing homeowners from getting a new mortgage. When the property is used as collateral, a common home appraisal value makes the risk too high for the mortgage lender, and the home loan is rejected.

A Second Appraisal 

You can get a second opinion via another home appraisal – either by presenting a credible case for a higher value to the original appraiser or getting it done by a different person. If the appraiser agrees that mistakes have been made due to imperfect information, they may revise the evaluation and appraisal value.

What Does CMHC Say?

Canada Mortgage & Housing Corporation states that a property valuation is not a fixed or permanent number. It is simply a snapshot of what your home is worth at the time of appraisal about current market conditions and what other similar properties are selling for. This value can change over time based on improvements to the property and changes in your neighbourhood and the overall housing market.

Whether buying or selling a home, applying for a mortgage, or refinancing your existing mortgage, a home appraisal is critical to real estate transactions. For example, a mortgage lender depends on the appraisal process and the property’s appraised value to approve a home loan. The buyer pays the appraisal fee in case of a home purchase, while the homeowner is responsible for the costs in a refinance mortgage. Therefore, the buyer and seller do not benefit from a lower price; it can delay the process. Ensure that your house is at its best when the appraisal takes place. Deep cleaning of the house, listing all features and amenities, completing minor repairs, and minimal people during the home inspection are some tips that make this a no-hassle process and an accurate appraised value.

Courtesy: Save Max Real Estate