Why an Appraisal?
Often, lenders require an appraisal for financing. Other uses of an appraisal include matrimonial property settlement, tax (eg. a snapshot of value to avoid future potential capital gains), or to assist in bankruptcy proceedings.
Can I get a copy of my appraisal?
If are the client of the appraisal report and ordered it from us, you can get a copy. If the appraisal was ordered by a lender for financing and that lender is listed as the client, the appraiser requires written permission from the original lender. Whomever is listed as the 'client' of the appraisal in the report is the owner of report as the appraiser is not authorized to release that opinion of value to anyone other than the client. The Appraisal Institute of Canada (AIC) is very clear on this policy.
What is an appraisal?
Watch a video about a residential appraisal.
An appraisal is an unbiased estimate of what a buyer might expect to pay - or a seller receives - for a parcel of real estate, where both buyer and seller are informed parties. To be an informed party and often to mitigate risk of mortgage fraud, many lenders require an appraiser licensed with the Appraisal Institute of Canada (AIC) to provide them with a legal document to help backstop a loan.
Market Research
So what goes into a real estate appraisal? It all starts with the research of the market.
Inspection
An appraiser's duty is to examine the property being appraised or the architectural drawings of a property being constructed. A full appraisal report requires an appraiser to actually see the property to verify it exists.
Once the property has been inspected, an appraiser may use multiple approaches to determining the value of real property including a cost approach, direct comparison and income approach.
Cost Approach
The cost approach is often the easiest to understand. It is the estimated land value plus the estimated cost to construct the building less the estimated depreciation of the building. For older structures, the cost approach is given less emphasis due to the difficultly in estimation market reaction to depreciation.
Direct Comparison
Appraisers frequently rely on the direct comparison approach to value for most property types. The appraiser researches recent sales or listings in the vicinity and finds properties which are ''comparable'' to the subject being appraised. The sales or list prices of these properties are used as a basis to begin the direct comparison approach.
Using knowledge of the value of certain items such as square footage, interior finishing, location, or view, the appraiser adjusts the comparable properties to form a value estimate of the subject property.
Income Approach
In the case of income producing properties, the appraiser may use an income approach. In this case, the amount of income the property produces is used in combination with a capitalization rate to arrive at a value estimate. The lower the perceived risk of the expected income, the lower the capitalization rate and the higher the value estimate.
Reconciliation
Through the application of one or more of the above approaches, an appraiser concludes a value so market participants can make more informed real estate decisions.