What is a Property Appraisal? A Comprehensive Guide

Navigating Bank Appraisals for Your Canadian Mortgage

Bank appraisals play a crucial role in the home buying process, impacting both home buyers and home sellers alike. In this guide, we’ll explore everything you need to know about home appraisals in Canada, from what they entail to how they can affect your mortgage.

What is an Appraisal?

An appraisal is an impartial assessment of a home’s value conducted by a third-party appraiser. Lenders require appraisals to ensure that the property’s value aligns with the purchase price, safeguarding their investment in case of borrower default.

Why are Appraisals Required?

Lenders seek appraisals to mitigate risks associated with lending. If the appraised value falls below the agreed-upon purchase price and the buyer defaults, the lender may struggle to recoup their investment by selling the property. Appraisals thus serve to validate the purchase price and protect lenders’ interests as well.

When is an Appraisal Required?

Appraisals are typically necessary for buyers making a substantial down payment (20% or more) or opting for uninsured mortgages. However, they may be waived for buyers with high down payments or mortgage insurance.

Who Pays for the Appraisal?

While lenders typically arrange appraisals, buyers often bear the cost, ranging from $350 to $500. Some lenders or mortgage brokers may cover this expense as part of their services, especially for clients of major banks.

The Appraisal Process

Appointment Setup: The appraiser schedules a property inspection with the homeowner or listing agent.
Property Inspection: The appraiser assesses the property’s condition, size, maintenance, and amenities, taking photos for their report.
Comparative Analysis: The appraiser compares the property to recent sales (“comps”) in the area to determine its market value.
Report Submission: Upon completion, the appraiser sends the report to the lender, who may share it with the buyer.

Determining Appraised Value

Appraisers evaluate a property’s value based on its condition and recent sales of comparable properties. They consider factors like location, size, upgrades, and market trends to arrive at a fair market value.

Dealing with a Low Appraisal

If the appraisal value falls below the purchase price, the lender will only fund the mortgage up to the appraised value. Buyers facing a low appraisal have three options:

Dispute the Appraisal: Challenge the appraisal with additional comparables or explanations
Seek a Second Opinion: Obtain another appraisal from a different appraiser or lender
Cover the Difference: Pay the shortfall out of pocket or adjust the down payment

Protecting Against Low Appraisals

Buyers can take proactive steps to avoid low appraisals, such as:

  • Reviewing comparables before making an offer
  • Ensuring the listing agent advocates for the property’s value during the appraisal
  • Maintaining a financial cushion for unexpected expenses
  • Partnering with an experienced realtor for guidance and market insights

In conclusion, understanding the bank appraisal process is essential for navigating the complexities of buying a home in Canada. By staying informed and proactive, buyers can ensure a smooth appraisal process and secure their dream home with confidence.

Team Kalia has been working with First time home buyers, both millennials and newcomers to the GTA, move-up buyers, investors and downsizers since 2003. We have successfully secured homes and condos in the GTA and surrounding areas for our clients. Sound pricing advice based on the current real estate market stats and market conditions forms the basis of negotiations for our clients, whether they are buying a home or selling a home. We are proud to say that there has not been a single instance where appraisal has come below the price our clients have bought a home for.

Looking to Buy or Sell Your Property in the GTA? Contact the Trusted Name – Team Kalia today!

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