What Is A Property Appraisal?
For those who are unsure about what exactly is an appraisal and who needs one and when; here is basic breakdown of everything you need to know. An appraisal is an unbiased estimate of the value of a property you want to buy or already own by a third party appraiser. Basically, it is an analysis of recently sold properties, active properties, terminated properties, and expired properties around your area to determine the value of the property right now. Keep your appraisal up to date. It’s important to note that most lenders will consider recent within the last 30 days, and will typically only accept an appraisal if it is done in the last 30 days.
When completed and submitted, fundamentally, an official appraisal is a “professional document” that gives an estimate of a property’s fair market value. Furthermore, an appraisal may be required by a lender before loan approval to ensure that the mortgage loan amount is not more than the value of the property.
Who is qualified to perform an appraisal? The actual appraisal is performed by an “appraiser” who is typically a licensed or designated individual trained to render expert opinions concerning property values. In an appraisal, consideration is given to the property, its location, amenities as well as its physical conditions.
Why do you need to get an appraisal?
The most common reason for ordering an appraisal is to obtain a loan on a property. Anyone or company lending you money. However, there are several other reasons why an appraisal might be needed. Not for just loans anymore, below are just a few reasons why you need to get an appraisal done:
• to establish the replacement cost (insurance purposes)
• to contest high property taxes
• to settle a divorce
• to settle an estate
• to use as a negotiation tool (in real estate transactions)
• to determine a reasonable price when selling real estate
• because a government agency requires it for tax reporting for example
Property viewed by the appraiser
What is involved and how long does an appraisal take? The viewing of the property will take anywhere between 15-60 minutes depending on the size and complexity of the property. The appraiser may ask questions regarding the age, recent updates and renovations, the state of the strata and contingency reserve if applicable, the age of the roof and other major bills. The appraisal will be required to take photos of the interior and exterior of the property as well for their report.
Completing the report
Once the appraiser has viewed your property they will do an extensive review of all comparable properties that have recently sold, and are active/terminated/expired in your area. Once all information has been reviewed and obtained, the appraiser will then reconcile the information in their report to arrive at a final market value of your property. Once the appraiser has gathered the required information, they will advise you on a timeline to complete the final report.
The final report
The appraiser will send a copy of the report to your lender as per their request. You may or may not receive a copy of your appraisal report so it is important that you talk to your mortgage broker or professional to find out.
What are appraisal methods?
Appraisers use three common approaches when establishing the value of a given property:
1. Cost Approach: In this approach the following formula is used to arrive at the property value: Value of the land (vacant), added to the cost to reconstruct the appraised building as new on the date of value, less accrued depreciation the building suffers in comparison with a new building.
2. Sales Comparison Approach: In this approach the appraiser identifies 3-4 comparable properties in the neighbourhood which have recently been sold. Ideally, the properties are close in vicinity (within a 1/2 mile radius of the subject property) and have sold within the last six months. The appraiser then compares the sold properties to the subject property. The factors used in the comparison include square footage, number of bedrooms and bathrooms, property age, lot size, view, and property condition.
3. Income Approach: In this approach the potential net income of the property is capitalized to arrive at a property value. This approach is suited to income-producing properties and is usually used in conjunction with other valuation methods. The process of converting a future income stream into a present value is known as capitalization.
After thorough exercise of the three approaches, a final estimate or opinion of value is correlated. When evaluating single-family, owner-occupied properties, the sales comparison approach is most heavily weighted by an appraiser.
How does an appraiser estimate appraised value/market value?
The appraiser’s main role is to gather information that aids in determining the current value of a property.
With regards to the subject property, they will be looking for information such as: recent renovations, the age of the roof, any upgrades that have been done, the condition of the property, amenities, size, the state of the strata and contingency fund, and the location.
Secondly, the appraiser will be interested in how the subject property compares to other homes that have sold recently in the neighbourhood. They will make adjustments based on the pros and cons of each comparable, to assist them in coming up with an appraised value/market value that is recent and current. To gather information about other comparables, they may access the local MLS data on current listings and recently sold homes to provide a sense of what the market has paid for similar homes in your area. They may also pull on tax records and other public documents for verifications of actual sales prices in a market, as well as also use his/her past experiences creating appraisals for properties in the same or similar market.
Who owns the appraisal?
Even though the borrower pays for the appraisal, the mortgage company owns it. This is because the mortgage company orders the appraisal on the borrower’s behalf, and the appraiser lists that mortgage company on the appraisal report.
We Know the Market
If you think you need a Vancouver appraisal done on your home, or you know someone who does, then it’s a good idea to contact an appraisal consultant who can walk you through the process. At Elliott Appraisals, for over 20 years we have been known as the experts in covering Metro Vancouver and the Fraser Valley for homeowners, and can also perform Vancouver Strata appraisals. Our company also specializes in Vancouver Insurance appraisals and building appraisals. Call us today at: 604 313 7598 and one of our fully accredited appraisers will talk to you and advise you on what are the best steps to take for your home. You can also fill our contact form. Every home, strata and situation is different and Elliott Appraisals will be able to guide you through the process of completing the report successfully, professionally and on time.