🔍 What Is a Property Appraisal?
A property appraisal is a professional evaluation conducted by a certified appraiser to determine the market value of a home. This process involves a thorough inspection of the property, considering factors such as:
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Comparable Sales: Recent sales of similar properties in the area.
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Property Condition: The state of the home’s structure, systems, and finishes.
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Location: Proximity to amenities, schools, and public transportation.
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Market Trends: Current real estate market conditions affecting property values.
💰 Who Pays for the Appraisal?
In most cases, the buyer is responsible for the cost of the appraisal, which typically ranges between $300 and $700- depending on location, size of property, timeline, etc. While the lender requires the appraisal to protect their investment, the buyer pays for the service. It’s important to note that the appraisal report is owned by the lender, not the buyer, and is used solely for the purpose of securing the mortgage loan.
If you are putting less than 20% down (insured)– the mortgage default insurer will value the property and unless the property is outside of an major residential area, very unique in some way or is being sold by owner- it is unlikely you will have to pay as the default insurer will cover the cost.
📝 Why Do Lenders Require an Appraisal?
Lenders use appraisals to:
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Determine Loan Amount: Ensure the property’s value supports the loan amount.
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Assess Risk: Confirm that the home is worth the investment.
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Protect Interests: Safeguard against lending more than the property’s worth.
If the appraisal comes in lower than the purchase price, buyers may need to:
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Negotiate: Discuss price adjustments with the seller.
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Increase Down Payment: Cover the difference between the appraisal and purchase price.
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Walk Away: If the contract includes an appraisal contingency clause. (buyer conditions)
🛠️ The Appraisal Process
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Scheduling: The broker orders the appraisal through an approved appraisal firm.
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Inspection: The appraiser visits the property to assess its condition and features.
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Analysis: The appraiser compares the property to similar homes in the area.
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Report: A detailed appraisal report is submitted to the lender, typically within 1–2 business days.
🏠 Special Considerations for Acreage Properties
For properties with unique features, such as large acreage, multiple buildings, or rural locations, the appraisal process may differ. Lenders often have specific guidelines on what should be included in the appraisal. For example, they might only consider the main residence and a portion of the land, excluding additional structures or extensive acres.
📌 Additional Uses of Property Appraisals
Beyond home purchases, appraisals are also utilized for:
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Refinancing: Determining the current value for loan modification.
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Private Sales: Establishing fair market value in non-traditional transactions.
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Estate Planning: Assessing value for inheritance or tax purposes.
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Insurance: Determining replacement cost for home insurance policies.
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Legal Matters: Valuing property in divorce or separation proceedings.
If you require an appraisal on a property you own, read this blog post on Preparing Your Home For A Successful Appraisal.
✅ Final Thoughts
Understanding the property appraisal process is crucial for navigating the homebuying journey. It ensures that you’re making an informed investment and helps facilitate a smooth mortgage approval process. If you have questions or need assistance with appraisals, feel free to reach out to our team at MSW Mortgage Brokers. We’re here to guide you every step of the way.
Note: The information provided is based on general practices in Canada. Specific procedures and costs may vary depending on the lender and location. Always consult with your mortgage broker or lender for details pertaining to your situation.