A home appraisal estimates value for a stated purpose, often a lender’s mortgage decision. Paying the fee does not necessarily make you the appraiser’s client or give you unrestricted use of the report. To separate a lender’s market-value appraisal from an insurance rebuilding estimate, our editorial team reviewed FSRA’s Ontario mortgage-application guide, the Appraisal Institute of Canada’s property-owner guide, the Canadian National Association of Real Estate Appraisers, and the Insurance Bureau of Canada’s home-coverage guide. The FSRA guide was used for the lender’s appraisal process, the appraisal organizations for report scope and client questions, and the IBC guide to separate market value from insurance rebuilding cost.
Do You Need A Home Appraisal In Ontario?
As a buyer, it’s also important to ask your lender who orders an appraisal or other property valuation, what type of valuation is required, who will pay for it, and whether or not their decision to approve your application is contingent on the results.
According to the FSRA, some lenders confirm property values with a home inspection, an appraisal, an online source, or by referencing the property’s listing. The method depends on the lender and each file, so get this information from your lender before waiving the financing condition or paying for an appraisal that isn’t acceptable.
Who Orders, Pays For And Receives The Appraisal?
| Situation | Likely client and user | What you should confirm |
|---|---|---|
| Mortgage purchase or refinance | Although the borrower may pay the appraisal fee, the lender is typically the appraiser’s client. | Report type, fee, access, acceptable appraiser and lender conditions |
| Owner orders a private appraisal | The owner or instructing professional may be the client | Intended use, named users, value date and report format |
| Seller wants pricing support | Although an independent valuation is not required, it is an option for the seller. | Is it worth the fee? What’s the purpose? What is the local market? |
| Legal, tax or estate matter | The work may be instructed by the lawyer, accountant, estate representative, or owner. | Correct effective date, intended use and required professional designation |
| Insurance rebuilding estimate | Owner or insurer may request a replacement-cost appraisal | That the assignment estimates rebuilding cost, not market value |
According to AIC, a lender may be considered the client of an appraiser, even if you are paying for it. Generally, an appraisal cannot be disclosed to anyone without the consent of the client.
How Do Renovations Impact Home Appraisals?
Keep track of anything related to renovations, including permits, contracts, receipts, plans, and certificates of completion, and provide the appraiser with a summary of the improvements made and when.
Don’t tell the appraiser what value should be placed on improvements. Remember, the cost of improvement is not necessarily its contribution to value. The appraiser must consider local buyers’ reactions to improvements, quality of workmanship, condition, utility, and comparable sales. It’s possible, particularly with home improvements, that your financial return could be less than what you spent, especially if they’re unique to your tastes or if the home becomes over-improved for the area.
Read More: See How Renovations Can Affect Home Insurance
Who Can Complete A Home Appraisal?
Even if you have an appraisal done by a qualified appraiser, the lender may not accept it.
In Ontario, some real estate appraisers may have a designation from the Appraisal Institute of Canada, such as CRA or AACI, or the Canadian National Association of Real Estate Appraisers, such as DAR or DAC. These are not Ontario government regulatory bodies; rather, they are professional associations that offer designation and set professional and member standards.
Ultimately, lenders decide which appraisers, designations, report types, and appraisal panels they will accept. Even if you have an appraisal, it may not be accepted if it was prepared for another purpose or client.
What Influences A Home Appraisal?
| Factor | What the appraiser may analyze |
|---|---|
| Property and site | Lot type, house type, house size, house style, floorplan, parking, outbuildings, utilities, zoning and legal use |
| Condition and quality | Age, finishes, systems, maintenance, deficiencies and renovation quality |
| Comparable sales | Recent relevant sales; differences between comps and subject; neighbourhood market trends. |
| Location | Neighbourhood, access, amenities, adverse influences and buyer demand |
| Market timing | The effective date of value and conditions at that date. |
| Property complexity | Rural, waterfront, mixed-use, unusual, multiple units and limited comparables |
Tax assessments, automated estimates, listing prices, purchase prices, and appraisals are often different. They are prepared on different effective dates, for different purposes, and in different ways. A purchase contract indicates the market but doesn’t necessarily mean the value the lender receives from their appraiser will match the purchase price.
What If I Disagree With My Home Appraiser’s Valuation?
If the appraisal comes back lower than expected and will not support the mortgage amount, call the lender or mortgage professional to get a copy of the appraisal. Keep in mind that this is their report, and the appraiser may not discuss a confidential lender’s report with you. Ask what you need to do to raise concerns. Some lenders have a process and will ask for reconsideration of value or a correction. Others will order a review appraisal or a new one. Ask who pays for it.
You will need to have facts if there are errors in the appraisal, like square footage, lot size, number of rooms, renovations, etc. You can’t ask for an amount just because you need it for your loan. You can send comparable sales, but make sure they are closed sales that were available as of the appraisal’s effective date. Explain why they are better comps. Homes that are for sale may not have as much impact, and sales after the home has been appraised may not either.
Discuss your options with your mortgage and legal professionals before deadlines. Maybe you can get another loan, negotiate on price or use a remedy in your contract.
Is A Home Appraisal The Same Thing As An Inspection?
While an appraisal is an opinion of value for a particular purpose and for a particular client, an inspection is an opinion of the visible condition of a property and potential functional or structural defects.
While the appraiser may comment on the property’s condition during the site visit, a buyer should know the visit does not constitute a home inspection, engineering analysis, or trade-specific inspection.
Read More: Compare a Home Appraisal With an Insurance Inspection
Does A Mortgage Appraisal Affect Home Insurance?
Replacement appraisals do not consider the cost of replacing the land. This is quite different from mortgage appraisals that estimate market value, a function of buyer demand, including the cost of the land.
Read More: Learn About Home Insurance in Ontario
A Mortgage Appraisal Does Not, By Itself, Set Your Premium
Never adjust dwelling limit based on changes in lender’s appraisal. Insurance companies use their own rating factors and replacement cost estimates. Give them as much information as possible about the construction, square footage, features, roofing, flooring, remodelling, etc. Ask how they determine the dwelling limit they recommend.
An Appraisal May Flag Property Details
An appraisal is not a hazard inspection. Problems may be noted that affect value. Proper inspections should evaluate any concerns about the condition of the roof, electrical, plumbing, or structure.
Disclose material defects in the structure, roof, plumbing, and electrical to the insurance company that will write the application/policy.
Rebuilding Cost Is A Separate Insurance Estimate
Before any renovations or improvements, policyholders should check with their insurers to verify the following: amount of insurance, by-law coverage, and any improvement and renovation endorsement.
Renovations, improvements, additions, etc. to your property can affect replacement cost and should be reported to your insurer.
Read More: See How Dwelling Coverage Protects the Building
How To Prepare For A Home Appraisal
Make sure you have safe access to the inside of the building, garage, mechanical/utility areas and any applicable outbuildings, etc. Prepare a short document summarising the property’s information, such as exact dimensions, parking situation, heating/cooling system, units’ specifications, renovation works, improvements, finishing, etc. Gather related documents, such as city permits, surveys, floor plans, renovation documents, leases, etc.
Fix small, noticeable problems, especially in common areas. Remove clutter and make sure the place is clean. Don’t try to conceal deficiencies and areas where work is incomplete.
Agree on the type of report, effective date, who will receive it, deadline for delivery, client, purpose, who will be billed, cancellation conditions, rush/travel charges, fee, HST, how corrections of factual errors will be handled.
Before You Pay An Appraisal Fee
Ask about the appraisal’s validity if you are changing lenders. Find out how long they will accept the report. Other issues may prevent reuse of an appraisal, including the report’s age, changing market conditions, changes to the property, confidentiality rules (appraisers may not release reports without the client’s consent), or the appraiser’s own rules about reports prepared by other appraisers.
Get a quote. Fees vary widely and depend on factors such as the complexity of the report, the scope of the appraisal, the property’s location, and timing. Appraisers are highly specialized by location and property type, so it could be more work and cost to prepare an appraisal on an out-of-the-ordinary property such as a multi-unit building, a home on the water, a home in the country, etc. Get a written quote that outlines any additional costs for travel, HST, reviews, cancellation, rush, etc.