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What is an Appraisal?
What does an Appraiser do?
Why would a person need a Home Appraisal?
What is the difference between an Appraisal and a Home Inspection?
What does the Appraisal Report contain?
After completing the report, what assurance is there that the Value indicated is valid?
Who do Appraisers work for?
Where does an Appraiser get the information used to estimate Value?
Why do I need a professional Appraisal?
How do I get ready for the Appraiser?
What is "Market Value?"
Which home renovations adds the most Value?
What is an Appraisal?
Back to top
An Appraisal is a thought process leading
to an opinion of Value which is arrived
at through a formal process that typically
uses the three "common Approaches to
Value"; the Cost Approach which is
what it would cost to replace the improvements,
less physical deterioration and other
factors, plus the Land Value; the Direct
Comparison Approach which involves making
a comparison to other similar properties
which have recently sold and is normally
considered the most accurate indicator
of Value; and the Income Approach, which
typically utilized when appraising income
producing properties (i.e. rental properties)
and estimating what an investor would
pay based on the income produced by
the property.
What does an Appraiser
do? Back
to top
An Appraiser provides a professional,
unbiased opinion of Market Value of
a property and presents their formal
analysis in a comprehensive report.
Why would a person need a
Home Appraisal? Back
to top
Although there are many reasons for
getting a Home Appraisal, the most common
reasons are Real Estate and mortgage
transactions. Some other reasons include:
- To obtain a loan.
- To establish the replacement cost
of insurance.
- To contest high property taxes
or for Revenue Canada(GST).
- To settle an estate.
- To establish a purchase or selling
price.
- For matrimonial (prenuptial/divorce
settlement) purposes.
- For employee relocation purposes
What is
the difference between an Appraisal
and a Home Inspection? Back
to top
The Home Inspector is to provide
an evaluation/report which will
include an evaluation of the condition
of the home's heating system, central
air system, interior plumbing, electrical
systems, roof, attic, visible insulation,
walls, ceilings, floors, windows,
doors, foundation, structure, etc.
An Appraiser is to establish
an estimated Market Value of the
subject property based on current
market conditions.
What
does the Appraisal Report contain? Back
to top
Each Appraisal Report must reflect
a credible estimate of Market Value
and will include, at the minimum,
the following:
- The client and other intended users
- The intended use of the report
- The purpose of the assignment
- The type of Value reported and the definition of the Value reported
- The effective date of the Appraiser's opinions and conclusions
- Relevant property characteristics such as location attributes, physical attributes, legal attributes, economic attributes, the real property interest valued
- All known easements, restrictions, encumbrances, leases, reservations, covenants, contracts, declarations, special assessments, ordinances, and other items of a similar nature.
- Division of interest, such as fractional interest, physical segment and partial holding
- The scope of work used to complete the assignment
- Photos of the property, the comparable sales, location maps, sketch of the property
After completing the report, what assurance is there that the value indicated is valid? Back to top
In communicating an appraisal report, each Appraiser must ensure the following:
- That the information analysis utilized in the Appraisal Report was appropriate
- That significant errors of omission or commission were not committed individually or collectively
- That services were not rendered in a careless or negligent manner
- That a credible, supportable Appraisal Report was communicated
To become a designated Appraiser with The Appraisal Institute of Canada, Appraisers must fulfill rigorous education and experience requirements (see Become a CRA or AACI at www.aicanada.ca) and all active members of the Appraisal Institute of Canada must take continuing education courses in order to remain a member. In addition, Appraisers must abide by a strict industry code of ethics and comply with national standards of practice for Real Estate Appraisal - the rules for developing an Appraisal and reporting its results are insured by enforcement of the Canadian Uniform Standards of Professional Appraisal Practice.
Who do Appraisers work for? Back to top
Appraisers are typically employed by lenders to estimate the Value of property involved in a loan transaction (i.e. mortgage), however Appraisers also provide opinions in litigation cases, tax matters and investment decisions.
Where does an Appraiser get the information used to estimate value? Back to top
Gathering data is one of the primary roles of an Appraiser with data divided into two categories, Specific and General. Specific Data is gathered from the home itself, i.e. location, condition, amenities, size, etc., and General Data is gathered from a number of sources such as Multiple Listing Services (MLS) for data on recently sold homes that might be used as comparables, tax records (MPAC), and other public documents which are used to verify actual sales prices in a market. But, most importantly, the Appraiser gathers General Data from his or her past experience in conducting Appraisals for other properties in the same market.
Why do I need a
professional appraisal? Back
to top
Anytime the Value of your home or other real property is being used to make a significant financial decision, an Appraisal helps - if you're selling your home, an Appraisal helps you set the most appropriate Value; if you're buying a home it makes sure you don't overpay; if you're engaged in an estate settlement or divorce it ensures that property is divided fairly. Often, your home is the single, largest financial asset you will ever own and knowing its true Value means you can make the right financial decisions.
How do I get ready for the Appraiser? Back to top
The first step in most Appraisals is scheduling a time for the Appraiser visit the home during which time the Appraiser will measure it, determine the layout of the rooms inside, confirm all aspects of the home's general condition, and take several photos of your house for inclusion in the report. The best thing you can do to help is make sure the Appraiser has easy access to all areas of your home, i.e. the exterior (trim any bushes and move any items that would make it difficult to measure the structure) and the interior (make sure the Appraiser can easily access items like furnaces and water heaters). The following items, if available, will help your Appraiser to provide a more accurate Appraisal in a shorter period of time:
- A survey of the house and property
- A recent tax bill (i.e. MPAC Assessment)
- A list of personal property to be sold with the house (if applicable)
- A copy of the original plans
- List of any improvements you have completed to the home (i.e. updated kitchen, new furnace, etc.)
- List outlining any rents, utility expenses, etc. (rental property only)
What is "Market Value?" Back to top
The most probable price, as of a specified date, in cash, or in terms equivalent to cash, or in other
precisely revealed terms, for which the specified property rights should sell after reasonable exposure in
a competitive market under all conditions requisite to a fair sale, with the buyer and seller each acting
prudently, knowledgeably, and for self-interest, and assuming that neither is under undue duress.
Other Acceptable Definitions of Market Value1:
The most probable price which a property should bring in a competitive and open Market as of the
specified date under conditions requisite to a fair sale, the buyer and seller each acting prudently and
knowledgeable and assuming the price is not affected by undue stimulus.
Market value is the estimated amount for which an asset or liability should exchange on the valuation
date between a willing buyer and a willing seller in an arm's length transaction, after property marketing
and where the parties had each acted knowledgeably, prudently and without compulsion.
This definition may be expanded by adding:
Implicit in this definition is the consummation of a Sale as of the specified date and passing of title from seller to buyer under conditions whereby:
- Buyer and seller are typically motivated.
- Both parties are well informed or well advised and acting in what they consider their best
interests.
- A reasonable time is allowed for exposure in the open market.
- Payment is made in terms of cash in Canadian dollars or in terms of financial arrangements
comparable thereto.
- The price represents the normal consideration for the property sold unaffected by special or
creative financing or sales concessions granted by anyone associated with the sale.
1Lines 16.14.3.i to 16.14.4.ii of Canadian Uniform Standards Professional Practice dated April 1, 2016
Which home renovations add the most to the Value? Back to top
The answer to this is different depending upon the location of the home as different markets Value amenities differently. For example, adding a central air unit in Toronto ON may add significant Value, while adding one in a home located in Nunavik NWT would not have much impact. As a general rule, the most Value returned from renovating a home comes from painting and decorating, and according to a survey conducted by the Appraisal Institute of Canada in, painting and decorating returned an average of 73% of the investment - in other words, a $3,000 painting and decorating project would add approximately $2,190 to the Value of the home. Kitchen renovations were second, returning 72%, and bathroom renovations were third with a 68% return.
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