Appraisal is an unbiased and formal assessment of home's market value
based on property condition, size, age, features and location.|
Do You Need an Appraisal
Buyers and sellers usually use informal evaluation of a real estate agent to determine a reasonable price.
However, some lenders may ask for a formal appraisal to make sure they will have enough collateral in the house you want to buy. They will appoint own trusted appraiser to ensure that the assessment is accurate.
Appraisers have to be licensed by Accredited Appraiser Canadian Institute. Average cost of appraisal starts at $300. It can go to as much as $1000 as its price depends on the complexity of an estimate and the property size.
How Appraisal Is Done
Comparative Market Analysis (CMA) determines fair market value through comparison to other properties in the same neighbourhood which are similar in size and have equivalent basic features.
This technique is the most useful in neighborhoods where there are many properties and more frequent sales, therefore easier to compare. CMA is the most common
appraisal method, widely used for price estimates of condominiums and single-family homes.
Comparative analysis provides only a rough estimate. In order to achieve better precision initial CMA estimates should be adjusted for other factors if they exist.
They may include unusual circumstances of sale (for instance foreclosure) and special features of the property that other properties don't have.
Rental Income Approach is used when the home has rental units. First, a comparative evaluation is made. Then, it is adjusted for extra income from renting.
Replacement Cost Appraisal indicates how much it would cost to rebuild the house in the same location.
This method is less common since market value may be different than cost of building the house. It is useful in rural areas where there are no other neighbourhood homes to compare to.
If you rely on your agent to determine the price of the property make sure that the Comparative Market Analysis is supported by recent data. Request information about similar homes recently sold, similar homes listed for sale now, and unsold expired listings homes.
Asking your agent to perform CMA when you buy a house is a good practice. There shouldn't be any charge for it as buyer's agents are paid out of the seller's commission. If the assessment turns out lower than the asking price you can use it to explain to the seller what you think the property is worth and why.
This US made video will give you some good insight into how an agent should come up with the proper property value.
Do I have to pay for appraisal
When you are asked by your lender for appraisal don't be shy to negotiate the matter of its cost.
Some lenders will absorb the appraisal fee to attract your business.
If your lender takes care of appraisal do not forget to request a copy of the appraisal report for yourself. You may need it for property tax and property insurance purposes.