If you’re getting a loan to buy an investment property, the lending institution will want to protect their money. An appraisal of the property is one of the ways they do that, and lenders often send in an Appraisal Institute of Canada (AIC)-approved expert to have a look inside.
The bank will send in a real estate appraisal after the seller has accepted the offer but before they advance the mortgage loan. However, you can get an AIC appraiser to come in before you even make an offer! This puts you in a better negotiating position because you’ll know an estimate of the market value of the home with an unbiased opinion that justifies the offer.
How A Real Estate Appraisal Works
Appraisers must be familiar with the property inspection process and observe the components and characteristics of the subject property that will influence value in the marketplace. The appraiser collects information on many elements during their inspection, including:
- The physical characteristics of the building and any outbuildings
- Interior and exterior finishes
- Interior systems like heating and cooling
- The quality of any recent renovations or improvements
- Any deficiencies or required repairs
- Room layout and measurements
Your average appraisal will be a pretty simple process:
- They usually take between 20 and 40 minutes, depending on the size and characteristics of the property
- The appraiser will take photographs to give a visual representation of the data described in the report. Exterior photographs are important to identify the property and its characteristics, while interior photographs are often requested by their client
- They will ask about important features of the property, such as the original date of construction, the timing of any additions or renovations, etc.
- The appraiser may inquire about any listings of the property (including private listings) or offers to buy in the past 12 months, as well as any sales of the property for the previous three years
- They will also compare the asking price to sales in the neighbourhood
It’s important to note that you won’t get a proper answer about the value of the property right away. Most of the valuation process takes place after your time; the inspection is for gathering enough information to describe the property.
How Much Does An Appraisal Cost?
An appraiser’s fees are not determined by the value of the property; rather, there is a flat fee determined by the complexity of the assignment and the number of hours needed to complete the appraisal. Note that the Big Five banks will often pay the appraisal fees, while smaller lenders like credit unions charge their clients between $400 and $500.
What If The Seller Won’t Allow An Independent Appraisal?
Some sellers might not let you have the home independently appraised before an offer is made. In cases like this, try and find an appraiser who can start with an exterior inspection, also known as a “drive-by appraisal.” By doing this, the appraiser can look at the condition of the home’s exterior, the property, and the overall neighbourhood, including comparable sales. You can also take note of what you see in your tour of the property, taking pictures and showing them to an appraiser for their take.
Why Are Real Estate Appraisals Necessary?
When you buy a home, the bank approves the mortgage using the appraised value of the property. This and not the purchase price determines the highest mortgage loan they’ll give you. If your offer is much higher than the appraised value, you may not receive the full amount of the loan. By knowing the appraised value ahead of making an offer, you’ll know if this is a good opportunity before committing to the seller or lending institution.
By getting a third-party appraisal, you can be sure that you will have all the knowledge required to make the right decision for property investing. Having an independent appraisal done before you ever make an offer is a good investment, especially if you’re excited by what appears to be a great flipping opportunity!