Of Prime Interest: Clarifying the appraisal process to obtain a mortgage

In Kelowna, as elsewhere, every property has unique characteristics that make it different from the next.

  • Jul. 13, 2016 1:00 p.m.

Even identical looking houses on the same street can have hidden factors that could create differences in the value of neighbouring properties.

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 and lack overall interior design pizazz of the other.

These differences are not obvious on the outside, but will greatly affect the value and sale price of the two homes.

In order for a financial institution to have an understanding of the value of a specific property against a mortgage application, the property must be inspected by an appraiser to give both the lender and the mortgage seeker a recommendation of its true value.

That appraised value of a home determines how much money the mortgage lender will lend for a purchase, home renovations, renewals or investment.

While there is more than one way that qualified appraisers conduct an appraisal for real estate properties, the most common option for residential properties is the comparative or market method.

This method compares recently sold properties which are similar in characteristics and location area.

This information is generally provided by the regional Multiple Listing board (MLS). After comparable recently sold properties are indentified, adjustments are made up or down for any differences in the properties.

No less than three comparative sales are used in the appraisal process. An appraisal will show the value of the property using the comparables of sales of similar properties within the last 90 days.

Along with providing comparable sales, the appraisal will physically measure the rooms of your home and access the overall condition of the property.

If you are financing an older home, the appraiser will assess what the “remaining economic life” of the home might be, to help determine the amortization period for the  mortgage application.

An appraisal for a standard home will cost in the neighbourhood of $300 to $350.  For the most part, appraisals are a necessary part of the mortgage process and financing is always based on the lesser of the appraised value or the purchase price.

When it comes to property sizes of more than five acres, some lenders 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.

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