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Ria Mavrikos

Licensed REALTOR® with Pemberton Holmes + Mavrikos Collective

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Always professional but I don't take myself too seriously. I enjoy the process of helping my clients find their dream home, investment property or anything in between!

Licensed REALTOR® in Victoria, BC with Pemberton Holmes + Mavrikos Collective

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What Is A Real Estate Appraisal? And Why You May Need One

A real estate appraisal is an estimate of the market value of your home. An appraisal is completed by a qualified, certified appraiser who is licensed and insured.

 

An appraisal is often required when purchasing, selling, or refinancing a home. If you’re buying a home for all cash, you will not need to have an appraisal. The appraisal is ordered and used by the mortgage company to protect themselves from overlending on a property.

 

What Are The Three Methods Of Appraisal?

While appraisers look at comparable properties (comparison approach) to determine the property value, they can also determine value using the income and cost approaches.

 

However, the comparison approach is the most common approach for appraisals when determining market value for residential properties.

 

The comparison approach looks at homes similar to the subject property that have sold within the last year. But, depending on the real estate market, an appraiser may use comparable homes that have sold within a shorter or more extended timeframe.

 

What Is The Appraisal Process Like?

A residential real estate appraiser can either do a “desktop” appraisal or appraise the subject property in person. A desktop appraisal is when an appraiser completes the appraisal from their office and doesn’t perform it in person.

 

Whether or not the appraiser will do an in-person appraisal may depend on the complexity of the subject property and the requirements of the lender.

 

The appraiser will attempt to gather enough information about the interior and exterior of the home so that they can best compare the home to other comparable sales.

 

If an appraiser is only looking at the outside of the home, then that is known as a “drive-by” appraisal. In this case, the appraiser will not inspect the home’s interior.

 

When Is A Home Appraisal Mandatory?

An appraisal is necessary whenever a mortgage loan is required as part of the real estate transaction. The mortgage lender who provides the loan to you will order the appraisal. They will not rely on other appraisals or an appraisal done by the seller. (Unless you, as the seller, are refinancing).

 

As a home buyer, if you need to get a mortgage to purchase a property, your lender will require an appraisal. Likewise, if you are refinancing your home, you will need an appraisal.

 

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What Happens If The Appraisal Is Lower Than The Purchase Price?

Mortgage lenders require an appraisal before giving out a loan because they want to protect themselves. If the buyer defaults on their loan, the lender will want to know that they sell the property and recoup most of their money.

 

If an appraisal comes back at a lower value than the home’s contract price, the lender may require the buyer to put more money down for their down payment. This requirement protects the lender if the buyer defaults on their mortgage loan.

 

Who Pays For An Appraisal?

Your mortgage broker will sometimes pay the appraisal fee, but in most cases, you, as the home buyer, will pay for it as part of the mortgage closing costs. The cost of an appraisal can vary depending on the complexity of the home and geographic area (if the appraiser is doing an in-person inspection) but usually costs between $300 – $500.

 

How Long Does An Appraisal Take?

Your mortgage broker or bank will likely send in a request for the appraisal. The date and time scheduled for the appraisal will be communicated between the seller’s agent and the buyer’s agent.

 

Neither the sellers nor the buyers have to be present for the appraisal, but the appraiser may need access to the home. The appraisal usually takes about 30 minutes but can be longer or shorter, depending on the size of the home. Then, it will take at least a week to get the appraisal back to the lender.

 

An appraisal can be valid for up to six months in most markets. But, in rapidly changing real estate markets, some lenders may only use more recent appraisals.

 

Is The Assessment Value The Same As An Appraised Value?

I get asked this question a lot, and I see why. On the surface, it may seem like your assessment value should equal the appraised value. But they are used for a different purpose, and here’s why. Your property assessment aims to provide a general value of a home to determine how much you will need to pay each year for property taxes.

 

The person who determines your assessment value has never seen the inside or outside of your home. They don’t know if you’ve done any recent updates to your home. Also, in BC, the assessed value is as the previous July.

 

For example, your assessment as of July 2021 is that your home is assessed at $800,000. Now you’re just about to list your home on the market eight months later, in March 2022.

 

In a changing market, that July assessed value will not accurately represent market value. Instead, an appraiser’s opinion of a home’s value on a specific date combines details from the home’s interior and exterior and recent comparable home sales in your neighbourhood.

 

As a result, an appraisal will be a more accurate representation of what your home is worth compared to the assessed value.  

 

What’s The Difference Between A Comparative Market Analysis and An Appraisal?

A comparative market analysis (CMA) is done by a realtor or listing agent before a seller lists their home on the market. Unlike an appraisal, a CMA is only used when selling a property.

 

There is no cost associated with getting a CMA as a seller. The realtor gives their opinion of value and provides the seller with a listing price range for their home, depending on recent comparable sales.

 

For instance, after a real estate agent completes the CMA, they may say that your house will sell for between $800,000 – $825,000. The CMA, combined with a home seller’s motivation to sell, will help them make an informed decision when it comes to selling their home.

 

A property appraisal can cost at least $400, and an appraisal is used primarily when buying or refinancing a property. Unlike a CMA, a licensed appraiser will set a specific value for your home. For instance, in the above example, they may say your home is valued at $815,000.

 

Overall, an appraisal report will be more detailed than a CMA and can be used by mortgage lenders for financing. An appraisal is completed by a qualified appraiser and a CMA is prepared by a real estate agent.

 

June 1, 2022

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