Appraisal Process

The residential appraisal process is a critical part of determining the fair market value of a home, often required in real estate transactions, refinancing, or property tax assessments. Here is a step-by-step breakdown of the process:

Step 1

Requesting the Appraisal

  • The process usually begins when an appraisal is requested by a lender, homeowner, buyer, or sometimes a municipality (for tax purposes). In Canada, the most common scenario is when a lender requests the appraisal as part of a mortgage approval process.
  • The appraiser is typically selected by the lender or through an independent appraisal management company (AMC) to ensure unbiased results.

Step 2

Appraiser Assignment

  • An appraiser (Candidate or Fully Designated) is assigned to the property. Appraisers are regulated by provincial bodies and often hold designations from organizations like the Appraisal Institute of Canada (AIC).
  • These designations include CRA (Canadian Residential Appraiser) or AACI (Accredited Appraiser Canadian Institute), which ensure they follow the Canadian Uniform Standards of Professional Appraisal Practice (CUSPAP).
  • Please see below for the distinction between a Candidate Appraiser and a Fully Designated Appraiser

Step 3

Property Inspection

The appraiser schedules a visit to inspect the property. This on-site visit is critical to assessing the property’s characteristics:

  • Exterior Inspection: The appraiser will examine the exterior structure, looking at the overall condition, materials used, and any external features such as garages, decks, or landscaping.
  • Interior Inspection: Inside, the appraiser will inspect the layout, the number of bedrooms and bathrooms, quality of materials (flooring, cabinetry), and any renovations or repairs. They’ll also note any functional issues or damage that could affect the value.
  • Photos and Measurements: The appraiser takes photographs of key areas and measures the living space to confirm the property size. If the appraiser has a reliable source for property size, measurements may not take place.

Step 4

Researching Comparable Sales (Comps)

  • The appraiser investigates recent sales of similar properties, known as “comparables” or “comps,” in the local area. This is crucial in Canada’s diverse real estate markets, as housing prices can vary significantly between urban and rural areas.
  • Comps are chosen based on similarities in size, age, condition, and location, and they must have been sold within the last 3-6 months to reflect current market conditions.

Step 5

Analysis of the Local Market

The appraiser takes into account the broader local real estate market. For example, in hot markets like Vancouver or Toronto, prices might be rising rapidly, whereas in more rural or less populated areas, the market might be more stable or even declining. The appraiser evaluates factors such as:

  • Supply and demand in the area
  • Interest rates and economic conditions
  • The overall state of the Canadian housing market, which may differ regionally.

Step 6

Valuation Approaches

Appraisers use three main approaches to determine the property’s value. The most appropriate method will depend on the type of property:
  • Sales Comparison Approach (Most Common): This is the most frequently used method for residential homes. The appraiser compares the subject property to recently sold comparable homes and makes adjustments for differences (e.g., if one comparable has a finished basement, its value is adjusted to match the subject property).
  • Cost Approach: This method estimates the value based on the cost of replacing or reproducing the home, minus depreciation. It is often used for newer or custom-built homes where construction costs are a more reliable measure of value.
  • Income Approach: Used primarily for rental or income-generating properties, this approach evaluates how much income the property could generate if rented.
  • Step 7

    Adjustments and Analysis

    The appraiser will make adjustments to the comps to reflect differences between the subject property and the comparable properties. These adjustments account for factors such as:
  • Lot size
  • Property upgrades or
  • renovations
  • Location (e.g., proximity to schools, transportation, or water views).

    They also assess the condition of the property and whether there are any significant repairs or improvements required.
  • Step 8

    Final Valuation

    • After completing the analysis, the appraiser arrives at a final estimated market value. This value is meant to reflect what a typical buyer would pay for the property under current market conditions.
    • In competitive markets like the Greater Toronto Area (GTA) or Vancouver, the final appraised value can play a significant role in determining the outcome of real estate transactions.

    Step 9

    Preparing the Appraisal Report

    The appraiser prepares a detailed report, which typically follows the Canadian Uniform Residential Appraisal Report (URAR) format. This report includes:
  • Information on the property and the surrounding neighbourhood
  • Market analysis and condition
  • Detailed descriptions of comparable sales
  • Photographs, sketches, and other relevant documentation
  • The appraiser’s final value conclusion

    This report is sent to the lender (or whoever requested the appraisal), and they will review the findings as part of the mortgage or financing process.
  • Step 10

    Review and Lending Decision

    • The lender reviews the appraisal to ensure the loan amount aligns with the appraised value. Mortgage lenders typically require that the property’s appraised value matches or exceeds the purchase price to approve the loan.
    • If the appraised value is lower than the purchase price, the buyer may need to renegotiate the sale price, increase their down payment, or potentially cancel the deal.

    Step 11

    Dispute or Revision

    • If there is disagreement with the appraised value (for example, if the buyer or seller feels the value is too low), a reconsideration of value can be requested. This involves submitting additional comparable sales data or information that the appraiser may have missed.
    • However, appraisers are not obligated to change the value unless new information justifies the adjustment.

    Step 12

    Completion of the Process

    Once the appraisal is approved by the lender, the financing process can move forward. If the appraisal was for refinancing, the homeowner can use the appraised value to proceed with the loan or line of credit.

    Step 13

    Tax Implication

    In some cases, an appraisal is requested for property tax assessments or reassessments. If a homeowner disagrees with the assessed value used for taxation, they may use a third-party appraisal to challenge the assessed value.

    Candidate Appraiser vs. Fully Designated Appraiser

    The distinction between a Candidate Appraiser and a Fully Designated Appraiser lies in their level of education, experience, and professional designation within the appraisal industry. Below is a breakdown of the differences:

    Candidate Appraiser

    A Candidate Appraiser is someone who is in the process of obtaining full professional designation but has not yet completed all the necessary education, experience, and examination requirements. They are typically working under the supervision of a fully designated appraiser.

    • Education: Candidate appraisers are often enrolled in appraisal-related coursework but have not yet completed the full educational requirements.
    • Supervision: They work under the direct supervision of a fully designated appraiser, who reviews and approves their work.
    • Designation: Candidate appraisers might be working toward the CRA (Canadian Residential Appraiser) or AACI (Accredited Appraiser Canadian Institute) designations from the Appraisal Institute of Canada (AIC).
    • Experience: They are required to accumulate a certain number of hours of practical experience under supervision before they can apply for full designation.
    • Responsibilities: While candidate appraisers can conduct property inspections and participate in the appraisal process, their work must be reviewed and signed off by a fully designated appraiser.

    Fully Designated Appraiser

    A Fully Designated Appraiser has completed all the required education, experience, and examinations to practice independently in their area of expertise. They are authorized to perform appraisals without supervision.

    • Education: Fully designated appraisers have completed all necessary educational requirements and passed the required exams to receive their professional designation.
    • Certification: In Canada, this typically means they hold the CRA (for residential properties) or AACI (for all types of real estate) designation from the AIC.
    • Experience: They have fulfilled the required number of supervised work hours, demonstrating their ability to conduct appraisals independently.
    • Responsibilities: Fully designated appraisers can conduct appraisals for residential, commercial, or industrial properties (depending on their certification) without needing supervision or oversight. They are also responsible for ensuring that their work adheres to professional standards, such as the Canadian Uniform Standards of Professional Appraisal Practice (CUSPAP) in Canada.
    • Authority: They are authorized to sign off on appraisals and assume full legal and professional responsibility for the reports they produce. They may also supervise candidate appraisers.

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