A FEW WORDS ABOUT APPRAISALS!

At some point in your life, you’ll probably have a real estate appraisal done and as common as they are, there are misconceptions about them, why they are needed, and how they reflect the value of your home.

An appraisal is defined as an unbiased estimate/opinion of the value of real estate based on data gathered via inspection and supported by relevant market data by comparing same to similar homes recently sold in like neighbourhoods. An appraisal is a reflection of what you could reasonably expect to sell your house for in today’s market, and consists of a written report.

Real estate transactions could never take place without accurate appraisals. Appraisers in Canada are trained and certified by two different organizations, the Canadian National Association of Real Estate Appraisers [CNAREA] and the Appraisal Institute of Canada [AIC].

People sometimes think that an appraisal is about protecting the buyer, when the truth is, it’s about protecting the lender. Lenders take very big risks when underwriting mortgage loans, and appraisals help mitigate those risks. Without an appraisal, a lender may write a loan for more than the home is worth and if the buyer defaults, the losses are large and hard to recoup! With that being said, an appraisal can also help a buyer from making a poor decision and paying more for a home than need be!

DID YOU KNOW that a residential real estate appraiser starts out as an apprentice, then takes the required courses, and then works for two years under the direct supervision of a fully-licensed appraiser?

When you’re buying/re-financing a home, the lender will require an appraisal to be done as he/she needs an impartial and professional opinion of value on the property in order to protect his/her equity. If you default, the lender can be assured of recouping the value of the loan to you.

Also, if you’re thinking about selling your home, you may want an appraisal just to get an idea of the value of your home before talking to a real estate agent or attempting to sell on your own [FSBO].

Appraisers often get an abundance of requests after a city/town has done a property tax re-evaluation and people are questioning their increased assessments.

Appraisal services are required for various reasons; real estate purchase/sale, divorce/estate settlements, fire insurance claims, litigation support, and feasibility/market studies etc.

The “norm” is an appraisal requiring both interior/exterior inspection, but an exterior inspection only aka “drive-by” may be used when there’s very little question about the value of the home supporting the requested loan amount.

Many factors are at play when appraising a home even though an appraiser will judge a home based on industry standards, but there is subjectivity in the process. Some factors are…

neighbourhood characteristics [urban/rural, growing/stagnant, schools?]

home trends in your area [increasing/decreasing prices, how long to sell?]

land use [single/multi-family/commercial?]

zoning classification

available public/private utilities

public/private alley/street improvements

foundation condition/materials

exterior condition/materials

interior condition/materials

driveway/garage condition

three [3] comparable sales over last six months

Because so many factors play into a home’s appraised value, a professional appraiser will judge a home based on industry standards. But because of that subjectivity, appraisals from separate, yet equally professional home appraisers, can vary widely.

WHO OWNS AN APPRAISAL?

The “owner” of an appraisal can be very tricky as the person/company who ORDERS the appraisal owns it [and all the information contained within]. Appraisers cannot release any of the information without written authorization from the orderer.

An appraisal focuses on a specific property and ideally measures its value to similar properties that have sold within the last six months, and are within a mile of the subject property.

HOW LONG IS AN APPRAISAL GOOD FOR?

Generally speaking, an appraisal is good for up to a year, but in today’s real estate environment, a lender may want a new one after six months, or just get a “re-certification of value” so that someone doesn’t have to pay for a whole new report.

APPRAISAL VS ASSESSMENT

Appraisals and Assessments are done for completely different reasons and within different time frames; assessments are done on a city/town-wide basis usually for the purpose of levying taxes. Re-evaluations of a city/town’s residential properties are mandated every year in British Columbia to reflect current market factors/new trends in the values of new/old homes, waterfront properties, condo projects, and 55+ communities.

APPRAISAL VS INSPECTION

Appraisers only LOOK at things that may present health/safety challenges such as cracked foundations, broken plumbing, exposed wires, they don’t test these issues or make recommendations beyond repair/s needed.

THE BOTTOM LINE…

Always ask questions and ensure you’re clear about what you don’t understand, as appraisers are human and make mistakes too, even though they have very clear guidelines to follow! The final estimate of value is the bottom line, and the only line, anyone really cares about.