No two properties are the same. Every property has unique characteristics that make it different from the next.
Even identical looking houses on the same street can hide things that could create differences in the value of the properties in question.
For instance, one house could have a newly renovated kitchen with brand new appliances and a finished basement, while the other house may be in need of major interior repairs or lack the pizzaz of the other.
These differences, while perhaps not obvious on the outside, can greatly affect the ultimate sale prices of the two homes.
In order for a financial institution to have an understanding of the value of the property in relation to the mortgage amount application, a given property must be appraised by an independent appraiser.
In our current volatile real estate market, appraisals offer the only method to arrive at a fair “market value” for a home.
The appraised value of a home determines how much money the mortgage lender can provide for home renovations, renewals, investment and other personal needs.
Keep in mind, when you purchase a home the mortgage lender will grant a mortgage based on the lesser of the purchase price of the home or the appraised value.
How an appraisal is done
There is more than one way that qualified appraisers can determine real estate values.
The most common for residential properties is called the comparative or market method, in which a comparison of recently sold properties is researched based on common characteristics and location.
Recently sold properties are identified, and adjustments are made up or down for any house characteristic differences.
No less than three comparative sales are used in the appraisal process.
The appraisal will show the potential sale value of the property within the last 90 days, to stay current with changing values.
Along with coming up with comparable sales, the appraisal will physically measure the rooms of your home and look at the overall condition of your home.
Facts to keep in mind
While the cost of the appraisal is normally borne by the mortgage applicant, in some instances the cost of the appraisal can be waived at the discretion of a financial institution.
An appraisal for a standard home will cost in the neighbourhood of $250, plus applicable taxes. For the most part, appraisals are a necessary part of the mortgage closing process.
There are some instances where the lender will accept the B.C. Assessment Notice to determine the value of the property if your mortgage is low in comparison to that value.
When it comes to property over five acres in size, some institutions will only accept appraisals based on a maximum five acres plus the residence. Others will give value for the full acreage and whatever other improvements are on the property.
Should you have less than 20 per cent equity in your home, your lender will require “high ratio” financing through either Canada Mortgage and Housing Corporation or Genworth Insurance. If that is the case, then an appraisal is normally not required.
And if you are financing an older home the appraiser will state what the “remaining economic life” of the home is. If your home has a remaining economic life of 15 years, then the longest amortization the lender will let you have is no more than 15 years.
Of Prime Interest is a collaboration of mortgage professionals Trish Balaberde, 250-470-8324; Darwyn Sloat, 250-718-4117; Arlyne Wilson, 250-862-1818; and Kristin Rosdal, 250-878-3007.