When buying or selling a house, it goes without saying that a clear, accurate estimate of what the property is worth is imperative. This goes beyond cleaning, staging, and any outside appearances. The true market value must reflect the actual bones of the house while accounting for what it might reasonably sell for in the market today.
Many real estate agents provide a home evaluation as part of their services. This can give you an estimate, but it is different from an appraisal. So what is an appraisal on a house? In this post, we will talk about bank appraisals vs real estate appraisals and why they matter so much.
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What Is a Home Appraisal?
A home evaluation is typically performed by a real estate agent for the purpose of deciding how much the initial listing price should be when selling a property. A compelling price point is critical to the success of a sale, but a bank appraisal is completely different. It is done by a certified appraiser on behalf of the bank or lender to ensure that they don’t provide more funding than the home is worth.
As a buyer, it is critical to understand how an appraisal for a mortgage works. Imagine that the appraised value for a certain property is $500,000. If you get caught up in the emotions of a bidding war and offer more than the house is worth, your bank is still only going to lend you a portion of the fair market value.
This is true even if you were originally pre-approved for a higher amount. If you go over the appraised value, you will have to pay the excess out of your own funds. This is something to keep in mind when establishing your budget.
Planning to buy a house in Toronto? The posts below can help you get the best value:
- Steps to Buying a House for the First-Time in Canada
- What Ontario Home Buyers Should Know About Financing
- Must-Have Features for Luxury Home Buyers in Etobicoke
How to Prepare for a Home Appraisal
Presentation is one of the key elements for selling a house. You might be able to enhance the perceived value based on beautiful staging and a comprehensive marketing strategy. Adding to the appraised value is not so simple.
A trained appraiser working for a bank is less likely to be swayed by emotions or surface-level improvements. Instead, the focus is on the true quality of the home. It’s also important to keep the results of an appraisal in mind from the buyer’s perspective. You may be thrilled to receive an offer above the asking price. However, it doesn’t do you any good if the buyer’s financing falls through. This is one of the reasons to keep appraised value vs market value in mind throughout your listing strategy.
Factors That Can Affect a Home Appraisal
Because a home appraisal is geared toward the lender rather than the buyer, different factors can affect the results. Many homeowners are surprised at what can impact the appraised value. For example:
- Unique features are one of the things that can hurt a home appraisal rather than help it. An attribute might look fantastic and even be highly functional, but if it isn’t marketable, it does not add value.
- Noise pollution isn’t something that you can necessarily control. However, a home that is in a peaceful, serene environment will likely fare better than one that is in a high-traffic zone.
- Big-ticket repairs and major upgrades don’t always translate into a higher value. Always consult with your real estate agent about significant renovations you are planning before listing your home.
- Intangibles matter when it comes to the final appraised value. Zoning changes or upcoming developments affect marketability, and thus lead to a lower number. Proximity to highways and highly-rated schools could add tangible value even though they don’t have anything to do with the structure itself.
How to Get an Appraisal on a House in Ontario
After a seller accepts the offer and before the mortgage is approved, the lender engages a qualified appraiser. This provides them with an unbiased and certified home value to ensure they don’t risk more than the house is worth. This doesn’t just protect their interests; it can also protect the buyer from overpaying on any particular home.
The appraiser will get in touch with the seller’s listing agent to arrange a time for a physical inspection. At this point, the seller is expected to prepare for the home appraisal by cleaning and decluttering and ensuring safe access.
In addition, you should make a list of all open permits, as well as any major upgrades and renovations you have performed. Once complete, the appraiser will compare the property to recent sales of similar homes and compile their findings into a certified report.
The lender will then use this information to finalize the maximum amount they are willing to lend the buyer. As the buyer, it might be a good idea to include a condition of appraisal in your offer to ensure that you can obtain sufficient financing.
Appraisal costs in Toronto can be higher than the rest of the province due to real estate values. The total will also depend on the type of property. Condos and townhouses likely cost less than semi-detached or single-family homes. Typically, it is the buyer who pays. However, the lender may cover the cost as an incentive.
What is working to sell homes in Toronto right now? Find out in the related reading below:
- What Buyers Want in Toronto Right Now
- Can You Sell A House In Toronto As Is?
- What Are The Secrets Of Staging A High-End Home In Toronto?
What Do Home Appraisers Look For?
A home appraiser will arrive at a property, take measurements, and perform a visual inspection to create their report. It is a non-invasive process, and an appraiser isn’t going to punch holes in the wall or even move furniture. They are simply examining the major components, such as the foundation and basement, the roof, and the HVAC system.
They are also looking at market factors, such as the sale prices of three to six similar properties that have sold within the previous six months. The final results of the appraisal will help the buyer to make a well-informed decision.
Whether buying or selling, our Toronto luxury real estate agents can help you achieve outstanding results. Reach out to ana@asantos.ca or call us at 416.575.7317 to take the next steps.
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