Understanding Mortgage Appraisals

So, your thinking of buying a home and the term Mortgage Appraisal keeps coming up.

But what is a Mortgage Appraisal? Will YOU need one?

What is an appraisal?

A formal opinion of value which estimates a properties fair market value.  Conducted by an Appraiser and usually presented as a written report when requested by a lender in the mortgage process.

The appraisal report is owned by the lender who has made the request, even though it is typical for the home buyer to pay for the appraisal as part of the closing costs for the mortgage.

The appraisal report is an integral part of the documentation required by a lender to meet its regulatory requirements for financings that are secured by real property.

How is an Appraisal Done?

An appraiser will gather information about the property at hand; he or she will then compare the property to the sale prices of similar properties.

General information is gathered from a variety of market sources. Specific information regarding the subject property such as location, condition, amenities, size, etc is gathered by the appraiser during a home inspection.

An onsite inspection typically takes 20-30 minutes during which the appraiser will find out important information about the property such as the date is was built, recent upgrades, age of roof, wiring, plumbing, etc. The Appraiser may also ask to see a Municipal Tax Assessment bill, deed or title report showing the legal description, a survey of the property, if renovations have been completed, the scope of work and costs.

What are appraisals used for?

The majority of appraisals completed in Canada are for mortgages. Other reasons can include divorce or estate settlement, disputing a tax assessment, foreclosures or to facilitate a real estate sale,

Types of Appraisals

Report Type

By Whom

Purpose

More Details

Appraisal

An Appraiser

For Lending Risk Purposes

An appraiser is an unbiased estimate of the value of a parcel of real estate.

Tax Assessment

The tax assessment authority

Determining tax due

MPAC reviews property sales within a neighbourhood to determine the assessed value of a property. The municipality then applies a mill rate to determine the amount of taxes to be paid.

Comparative Market Analysis

A REALTOR

Determining the listing price

A CMA is what a real estate agent recommends as the probably sales price for a given property. It is in anticipation of obtaining a listing for a property and is based on a survey of like properties.

Home Inspection

A Home Inspector

Determining safety & working order of a home

An in-depth, third party evaluation of the accessible structure & mechanical systems of a home, such as roof & plumbing, that determines if they are in good working order and safe. Identifies structural problems or other defects and notes any repairs that may be needed, and approximation on timing and costs of those repairs. Does not provide a value on the home.