You may have spotted the perfect home, and you cannot wait to make it your own. However, buying or selling a new home is not a one-step process. For many years, appraisals have been a vital part of real estate transactions. For buyers, a home appraisal is often required when seeking financing.
Having a clear knowledge of appraisals prevents sellers or buyers from getting short-changed. Also, both parties can adequately prepare for appraisals and avoid getting unpleasant surprises once the appraisal is completed.
But what do home appraisers look for in Canadian properties? This is the most common question that developers get from buyers and sellers.
But first, what is an appraisal?
An appraisal is an estimate of the value of a home. Often conducted by a third party, appraisals are required by lenders. What are home appraisers looking for? An appraisal aims at ensuring that the value of a home that a buyer is paying is within reason. To ascertain the value of a home, an appraiser will consider various factors discussed below.
Why are appraisals important to lenders? If a lender has financed a home, they can sell it if the buyer defaults on the mortgage. If the financed amount is less than the value of a home, the lender is likely to experience issues in their efforts to recoup the invested amount. In most instances, lenders only finance the appraised value and not the full purchase estimate.
When does an appraisal take place?
Appraisals are done once the seller and buyer agree on the price of the property, and a contract has been signed.
However, appraisals can also be done before the buyers view and settle on the property, a process referred to as a pre-listing appraisal. Homebuyers can protect themselves by getting a pre-listing appraisal since it protects them from the unpredictability of a lower appraisal before a sale agreement is signed.
However, most pre-listing appraisals are done when the real estate market is facing volatility or in instances where the home is unique compared to other homes in the same location.
What do bank appraisers look for in a home in Canada?: All you need to know
The home’s structure
Every buyer looks at the home’s structure before purchasing a home. While buyers have varying structure preferences and needs, some features raise the value of a home.
The home’s square footage, as well as exterior and interior characteristics, play a huge role in an appraisal. For instance, a home that has a garage that can house three cars will be assigned additional value compared to one that does not have a garage or one that can only house one car.
Similarly, the availability and functionality of interior characteristics such as the type of heating and cooling system will affect the appraisal amount. Homes that have modern HVAC systems will attract a better appraisal as opposed to those that have outdated HVAC systems.
Extras also add to the value of a home. For instance, a home garden, yard, patio or sprinkler system can increase the value of a home.
Location is one of the major determinants of the value of a home. Homes that are in a desirable neighbourhood attract a better price.
When it comes to the location, appraisers consider the location of the home, whether it’s urban or rural, and the growth in the area. Also, homes that are close to amenities such as good schools and a reliable transportation system will be worth more.
Appraisers also look at how safe a neighbourhood is — an evaluation that is often based on crime statistics.
Appraisers look for similar properties in a particular area. These are used for comparison when determining the value of homes in the area.
Amenities such as street utilities also come into play when evaluating the value of a home. For instance, the availability of improvements such as sidewalks and the zoning classification can affect the appraisal value.
Your home may have many desirable characteristics. However, if the social and economic trends are not favourable at the time, the appraisal value will be affected.
An appraiser will look for the number of sellers or buyers in a given location. In the situation where it’s a buyer’s market whereby the number of sellers significantly exceeds the buyers, the value of a home may be less.
However, if there are excess buyers and few sellers, the value of the home can increase.
Here are three tips that homebuyers can use to protect themselves from low bank appraisals:
- Work with an experienced realtor- Making a good purchase decision is the first step to avoid getting a low appraisal. Before settling on one home to purchase, work with a reputable realtor who has good knowledge of the market value of different properties. This is a great measure that buyers can take to prevent overpaying. A realtor will guide through properties such as those offered by Paradise Developments and also provide comparable sales.
- Ensure your realtor educates the appraiser and directs them to recent comparable sales- Although the appraiser can get their comparables, providing listings in your neighbourhood puts the buyer in a better place to get a fair appraisal.
Purchase homes from reputable developers- Just what do home appraisers look for in Canada? It is important to ask yourself this question when viewing the property that you want to purchase. Purchasing new properties from reputable developers such as Paradise Developments is a sure way to avoid low appraisals in the future. Some of the developers use shortcuts such as building with low-quality materials and installing outdated appliances to save on costs. Once your appraiser catches this, the result is a low appraisal value.