Appraisals are a critical aspect of real estate transactions in Canada. They provide an unbiased estimate of a property market worth, which makes them very useful for all parties in a real estate transaction, from the buyer, seller to the lender. The purpose of appraising a property is to ensure that the buyer is not overpaying for the deal and the seller is getting a fair value during the transaction of their real estate for sale.
In addition, lenders too rely a lot on appraisals to determine how much they should lend to a borrower for a property or what should be the fair mortgage financing for a particular property. They also need appraisals for property tax assessment purposes, and for settling legal disputes as well. Without an appraisal, a property might fail to facilitate transparent transactions thereby causing losses to the concerned parties.
It’s the appraisal that informs both the buyer and seller about the accurate market worth of a property based on various factors such as its age, location, and condition. Lending too becomes fair when it has property as a key requirement.
In this blog, we will understand real estate appraisals in Canada and explore various key components as well.
Let’s get started then….
How does an appraisal process work?
In Canada, an appraisal is a vital aspect of any real estate transaction process and it typically involves several steps:
- Step 1 – Engaging a certified appraiser is often the first step of the appraisal process. The appraiser will first seek information about the property and then visit it to personally inspect it. The inspection involves taking note of the property’s condition, age, features and other aspects that can determine its fair market worth
- Step 2 – Once the appraiser has done the inspection, he/she will evaluate the property’s worth by conducting a market analysis. Such an analysis involves understanding the area’s market conditions and looking at the recent sales data of similar properties.
- Step 3 – In the next stage, the appraiser will adjust the comparable sales data to ensure that the final value estimate is a true reflection of the subject property. Such adjustments are based on the objective analysis of the sales data and they are free of biases.
- Step 4 – The last step involves the preparation of a final appraisal report based on all the information and data collected during the process. The appraisal report is handed over to the client who engaged the appraiser so that informed decisions can be made, be it for buying or selling, refinancing a mortgage, or settling an estate.
Key things home buyers should know with appraisals
- Home buyers should understand that appraisals are not the same as inspections. While an appraiser will indeed analyze the condition of the property, the purpose is purely to determine the market worth of the properties for sale.
- If a home buyer plans to obtain a mortgage, they should know that lenders may seek an appraisal report to ensure that the loan amount aligns with the property worth.
- While appraisals give an accurate estimate of a property’s value, they can never be considered as a guarantee of value as other factors such as the market condition, too can impact the property’s actual value.
- A home buyer should always hire a licensed appraiser who is certified by a regulatory body and has the requisite qualifications and experience to perform an accurate appraisal.
- Appraisals are non-transferable and home buyers may need to obtain a new report in case they switch lenders or decide to refinance the mortgage.
Key things home sellers should know with appraisals
- While sellers can’t directly control how an appraisal is carried out by the professional, they can definitely prepare their home and take certain steps to enhance the market value of their home. A seller can take up any necessary repairs and keep the home organized and clean to impact the appraisal. A seller can also share with the appraiser any information regarding a recent upgrade as this can also impact the appraisal process.
- Sellers should know that a lender will require the buyer to produce an appraisal report when a mortgage is sought to buy the home. This requirement ensures that the borrowing is done in tune with the home’s market value.
- Appraisals can also impact the sale price of a home and sometimes may make the transaction unfeasible for buyers. This happens in cases where the appraised value of a home comes out lower than the pre-agreed sale price, making the buyer unable to secure financing for the total amount. When that happens, both the buyer and seller may need to renegotiate and adjust the sale price.
Real estate appraisals have always been helpful for both buyers and sellers in making informed decisions and achieving their real estate goals. With an appraisal, the right approach is always to take a licensed professional on board and ensure value with the real estate investment.