A home appraisal is vital to the process of buying and refinancing to determine a property’s value. An appraisal is an expert evaluation of a property’s value conducted by a certified appraiser. This qualified professional assessment ensures the property’s worth aligns with the sale price or refinancing terms, protecting buyers and lenders.

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Key Takeaways

• A home appraisal is a professional assessment of a property’s market value.
• Home appraisals determine the amount that can be borrowed when purchasing or refinancing. 
• Lenders pass the home appraisal cost on to the borrower, and the costs vary depending on the property and the availability of appraisers.

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Why Is a Home Appraisal Important?

Home appraisals are essential in real estate transactions, ensuring the property is not overpriced and that lenders rely on appraisals to confirm that the loan amount aligns with the home’s market value. When refinancing your home, a home appraisal confirms the amount that can be borrowed based on the home’s current appraised value.

How Does the Home Appraisal Process Work?

During a home appraisal, the appraiser will visit the property and conduct a thorough inspection, considering the property’s physical characteristics and any outbuildings, interior and exterior finishes and systems, quality of improvements, and any repair deficiencies. They will also consider the home’s size, location, condition, and age. 

An appraiser collects as much information as possible to add to their analysis of recent sales market activity for comparable properties in the area and current market conditions and activity. They will then use various methodologies based on their findings and the property type to determine the property’s valuation. 

Understanding Desktop Appraisals

Desktop appraisals are remote property valuation methods that rely on data and digital tools instead of physical site visits. They leverage MLS listings, tax records, and satellite imagery information to estimate a property’s market value. These appraisals benefit straightforward transactions, such as insured and low-ratio insurable mortgages on new purchases and renewals or low-ratio refinances where a physical appraisal may not be necessary.

When Desktop Appraisals Are Used

Desktop appraisals are commonly employed in scenarios requiring quick and cost-effective property assessments. Mortgage lenders and insurers often use them for low-risk transactions where detailed, in-person evaluations are optional. They’re also suitable in areas where access is difficult or when timely decisions are necessary, such as in competitive real estate markets.

Who Uses Desktop Appraisals

Mortgage lenders, insurers, and real estate professionals widely use desktop appraisals. Companies like CMHC, Solidifi, and the National Appraisal Service (NAS) offer tools and services to support these valuations. Industry standards, such as the Canadian Uniform Standards of Professional Appraisal Practice (CUSPAP), ensure that qualified appraisers provide consistent and reliable results.

Home Appraisal vs. Comparative Market Analysis (CMA)

Home appraisals are conducted by a professional appraiser and are used to determine a property’s valuation. Home appraisals meet lender guidelines and can highlight additional risks to the property concerning financing, giving lenders a complete assessment and valuation of the property. An appraisal determines loan amounts when purchasing or refinancing. 

Real estate agents provide a comparative market analysis (CMA) to estimate a property’s value. It uses comparables from sales of similar properties in the past year to estimate a property’s current market value. Property owners can use this data to determine how much to list their property based on the current market. A CMA determines the potential sale price of the property. 

Who Pays for a Home Appraisal?

In most cases, the lender will pass the home appraisal cost on to the borrower and should be budgeted for as part of your closing costs. This is standard practice in Canada, particularly during home purchases or refinances. Appraisal costs vary, but for typical homes, they range between $300 and $500, depending on the property’s size, location, speed of service, and availability of appraisers.

How Do Home Appraisals Impact Mortgages?

When purchasing a home, the mortgage amount is based on the lower of the appraised value or the purchase price. If the appraised value is less than the purchase price, the lender will adjust the loan amount to cover only up to the appraised value. If the appraised value matches or exceeds the purchase price, the lender will loan the amount that covers the purchase price. 

If the appraised value is less than the purchase price, you, as the buyer, must come up with the funds for the remaining amount to cover the shortfall. You will need to work with the seller to renegotiate the purchase price to align with the appraised value or provide a larger downpayment to make up the difference between the appraised value and the selling price. 

When Do I Need a Home Appraisal?

• Buying Property: lenders will want an appraisal to confirm the loan amount doesn’t exceed the home’s appraised value.
• Refinancing: lenders will want an appraisal to confirm the refinanced amount doesn’t exceed the home’s current appraised value. 

Frequently Asked Questions

Here are some of the most common questions prospective home buyers and sellers ask about the appraisal process in Canada. 

Final Thoughts

A home appraisal is critical in homebuying, mortgage renewal or refinancing. An appraiser’s valuation ensures fair transactions for all parties involved. Understanding the appraisal process can help you prepare for a purchase or evaluate renewing or refinancing options.

Need expert mortgage advice? Contact nesto mortgage experts today to guide you through your home appraisal and financing journey.

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