Introduction

You might have stumbled upon this article since you are looking to buy or sell your home, refinance your home, or might need the services of a professional home appraiser. There are three instances when it is common for people to work with home appraisers. The first and most common instance when you will be working with a home appraiser is if you are selling or buying a home. The second instance when you might employ a home appraiser is if you are applying to get your mortgage refinanced. The third most common instance when you might work with a home appraiser is for insurance purposes.

In this article, you will learn about what a home appraisal is for real estate purposes and insurance purposes, what a home appraiser is looking for and what factors determine a home and property’s value. You will also gain insight into why home appraisals are important, when you should hire an appraiser, how to find a professional to appraise your home, how much you should expect to pay to have your home appraised in Ontario, and things to consider when getting your home appraised. Hopefully, after reading this article on home appraisals, you will have a clearer understanding of home appraisals work, why they are important, how much you should expect to pay a home appraiser in Ontario, what to expect when getting your home appraised, and more.

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What is a home appraisal?

A home or property appraisal is an independent, third-party, unbiased professional’s assessment of a home and property’s fair market value. An appraisal is based on a variety of factors including the size and age of a home, the condition a home is in, the condition a property is in, a home’s features and amenities, the home or property’s previous sales price, the comparable final sale prices for other comparable homes, and more. A home’s appraised fair market value is usually different from a home’s sale price. The appraised fair market value for a home can influence different things such as real estate transactions, your ability to get a mortgage to buy a home, how much you pay for a home, and your ability to refinance your mortgage. A real estate appraiser is a licensed and usually professional who has undergone specialized training and has experience with determining the fair market value for a property. 

A professional property or real estate appraiser has an important job since they can help home buyers find out before they buy a home or property whether or not they are paying the fair market value for a home or property they are purchasing. Their opinion helps lenders to decide how much money they are willing to provide their customers who are taking out mortgages to buy homes. A home appraiser’s report can also influence whether or not if you will be able to get a mortgage to refinance your home. Lenders weigh professional appraiser’s opinion heavily because of their experience, expertise, knowledge, and training in areas related to property valuation and calculating a property’s market value. This means when working with an appraiser, you will want to find one who is licensed to do appraisals in your area and who also has a good understanding of your area and neighbourhood, the local economy and real estate market wherever you are.

In real estate transactions, appraisals are meant to help ensure that the buyer is paying a fair price for a home and the lender is not giving them too much to buy a given home or property. Buyers in most real estate transactions who are working with lenders will need a home appraisal done before proceeding with a sale. Even all-cash buyers will probably want a home and property appraisal done to ensure that they are paying the fair market value for a home.

A home appraisal visit should last anywhere from fifteen to twenty minutes to a few hours. You should expect to receive an appraiser’s report anywhere from a few days and up to two weeks after they have visited the property and made notes on what they saw while visiting your home.

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Why is a home appraisal important?

Real estate appraisers have an important role in real estate transactions and dealings with financial institutions, and insurance appraisers have an important role in dealings with insurance companies. Real estate appraisers can help sellers sell their home for an appropriate price that reflects their home’s fair market value and they help ensure that buyers are paying the right price for a home instead of a price that is much greater than a home’s actual market value. Real estate appraisers also can help lenders decide if it is a person is a good candidate to have their mortgage refinanced. While insurance appraisers help homeowners and insurers to develop policies that help ensure that homeowners’ belongings and homes are sufficiently protected in case their belongings or homes are ever damaged. In this section, we will examine the role appraisers have in real estate transactions, lenders, refinancing, and determining insurance coverage.

Why a home appraisal is important for real estate transactions?

It is a good idea if you are a buyer making an offer on a home to include contingencies for a home inspection and a home appraisal. This means that if the home inspection turns up major red flags in a home and/or the home appraisal comes at a much higher or lower than the agreed-upon sale price you are protected if you want to back out of this sale. An appraisal serves to help sellers understand if they are getting a fair price for the property and it helps buyers by also helping them avoid overpaying when purchasing real estate. 

In a hypothetical situation, if the appraisal comes back much higher than originally expected, higher the previously agreed-upon sale price, the seller might be able to negotiate a higher sale price with the buyer and get more money for their home. On the other hand, if the appraisal comes in lower than the previously agreed-upon sale price, this means that the buyer might be in a better position to negotiate a lower sale price with the seller to reflect the home or property’s actual value.

Why a home appraisal is important for lenders?

Lenders use appraisals and benefit from using appraisals since they can help ensure that buyers or homeowners are not over-borrowing when purchasing or refinancing a property. Lenders use a home appraisal to help determine how much money they should lend buyers or homeowners for a mortgage or loan. Appraisals are important for lenders and financial institutions since the home or property will serve as collateral for a mortgage or a loan. This means that if a borrower defaults on their mortgage or loan and ends up going up into foreclosure, the bank or financial institution will be able to sell the home as a way to recoup the money it lent the borrower and recoup on their losses. 

We can think of a real estate appraisal as tool banks and financial institutions use to protect themselves from over lending and needing to recoup further losses if the buyer or homeowner’s home goes into foreclosure. An appraisal in this sense is almost like a home inspection because it allows banks to gauge some idea of how much a property is worth and help them decide whether or not it is worth it for them to lend a certain amount of money to someone to purchase it. Like a home inspection, helps a home buyer to learn more about a home and the condition is in for a home buyer, so they can avoid a home that might end up being a money pit. An appraisal helps banks try to mitigate some of the risks associated with lending and mortgages by ensuring they won’t give a borrower more money than a home is worth to help them buy a house.

A lender, bank, or other financial institution might hire an appraiser to help them figure out how much money they should loan out for a mortgage. When a lender has a property appraised, they are evaluating the property’s value. An appraiser in this situation is analyzing land, construction, and home sale records, comparable prices for comparable homes sold in the area, the condition home and property are in, and the real estate market in a given area, among other factors. Once an appraiser collects this information and writes up their report and submits it to the lender, seller, buyer, and others involved in this transaction, the seller and buyer can establish the market value for the home and decide whether or not they have established a fair sale price for the home. This will allow a bank, lender, or other financial institution to provide borrowers with a specific value for a mortgage they are willing to give out to a borrower.

Why a home appraisal is important when you are refinancing a home?

A home appraisal is important when you are refinancing a home since it can ensure that you are not overborrowing to cover the cost of your mortgage. A favourable home appraisal, as well as a high credit score, and other factors can help you to refinance your mortgage, so you have a lower monthly payment, lower interest rates, take out a home equity loan or do a variety of other things. A favourable appraisal can have a huge impact on your application to refinance your mortgage so you want to be prepared to show your home in the best light possible so you can the best outcome possible.

Why a home appraisal is important for Insurance purposes?

A home appraisal is important for insurance purposes since it can help you to work with your lender to develop a policy that is appropriate for you and your needs. An insurance appraisal is not meant to determine the true market value for your home, it’s meant to help insurers develop a premium schedule that you can pay. This policy is meant to help cover your home and belongings in the event they are damaged and need to be replaced. A further discussion of how home appraisals work for insurance purposes can be found in the section dealing with when you should have your home appraised and the conclusion of this article.

Related article: GTA home buyers and sellers are overpaying by thousands

What is a home appraiser looking for when they are assessing a home’s value?

An appraiser is looking at and assessing the value of your home and property, without your personal effects. Appraisers do not care about custom furniture or other things that are yours that you might be taking with you or have no impact on a home’s value. They are considering things such as the quality and workmanship that built your home, your home’s “bones”. They are considering the interior and exterior condition that your home is in, your home’s size, how many rooms, how updated is it, how functional is it, any amenities, and the size of the lot your lot is on. They are also looking at the sale prices for comparable homes in your neighbourhood and area. They will be making notes and recording information about this.

 When considering your home’s fair market value, this number is influenced by recent sales of similar properties and current market trends, i.e. if homes are being sold for more than asking price, etc. An appraiser is considering your home’s amenities such as the number of bedrooms and bathrooms, square footage or square meters, and how functional a home’s floor plan is. An appraiser will do a complete visual inspection of the home’s exterior and interior, making any notes of anything that might decrease a property’s value such as anything that needs to be repaired.

Appraisers will be combining this information and observations with information on comparable sale prices and property values in the area. Here is a link to a common residential appraisal report that is used in the United States for single-family homes to help you get an idea of what an appraisal report might look like. 

An appraiser’s report usually should include a street map that shows the property being appraised and comparable sales used to calculate the home’s value, as well as a sketch of the building’s exterior, a note explaining how they calculated the property’s size in square feet or square meters. An appraiser’s report might include photographs of the front, back, and street scene in front of a home, the front exterior and photos of the comparable properties used, as well as any other relevant information. Relevant information they used could include market sales data for the area where a home is located, public land records, and public sales records that an appraiser might use to determine a property’s fair market value. Here is a process you can see an appraiser use when you are visiting your home to appraise it. They will begin with the exterior and after the exterior move into the interior.

Exterior

A good appraiser will measure and verify the size of a lot. They will make note of a home’s curb appeal and whether or not everything is in good condition and in good working order. They will be looking at the condition of your exterior, how the landscaping looks, whether or not the paint is peeling, the quality of the siding and condition of your home’s foundation. They are also taking into account the condition of the paint, the quality of the paint that was used and the foundation for anything outside. They are looking at any amenities such as a yard, garden, swimming pool, sprinkler system, any landscaping, patio, etc.

Interior

When doing an interior inspection, an appraisal will go room-by-room assessing and making notes. They are looking at the material, quality, and condition of all fixtures used in a home. They are making notes about the appliances, plumbing, flooring, and anything else that might be left behind when the seller, owner, or current occupant moves out, that includes is not limited to:

Plumbing fixtures (toilets, showers, tubs, faucets, etc.)

• Light fixtures
• Quality of the interior paint
• Flooring
• Appliances
• Windows/Doors
• Furnace
• Air Conditioning Unit(s)
• Heating and Air Conditioning (HVAC)
• Cabinetry
• Countertops
• Electrical system
• Whether or not the basement is finished
• Fireplaces if applicable
• Security system

When should you have your home appraised?

There are three instances when you can expect to work with a home appraisal professional. You can expect to work with a home appraiser whenever you are selling or buying a home or if you are working to refinance a mortgage on your home. You can also expect to work as an appraiser who appraises homes for insurance purposes.

Home appraisals during real estate transactions

Home appraisals when you are selling a home usually occur after you have accepted an offer to sell your home, approximately seven to ten days after a home inspector has inspected your home. If you are purchasing a property, usually the seller accepts your offer, you have your future home inspected and then approximately seven to ten days after your future home is inspected you would have a home appraisal. If you are having a home appraised as part of a real estate transaction, the home appraisal will be happening after the seller and the buyer has negotiated and gotten the details for this transaction in writing. 

In other words, the home appraisal is happening after the seller and buyer would have worked out questions and issues related to the home’s sale. The buyer and seller would have already negotiated the home’s sale price, repairs that the buyer needs the seller to complete before closing on the home, and any credits related to selling the home. At this point, the buyer or lender will send in a home appraisal professional to assess what the fair market value of the home is. Home appraisals are usually done as one of the last steps in the sale process. You might be wondering why the home appraisal is one of the last steps in the process?

 It is common to do a home appraisal later on in a real estate transaction since they are expensive, and buyers do not want to pay for an expensive appraisal if the seller is not going to accept their offer. However, home appraisals happen before you close on the sale of a home since they are an assessment of a home’s fair market value. If you are having a home appraised before closing you are helping to ensure that you are not overpaying when purchasing a home, paying more than a home’s fair market value. 

Home appraisals when you are refinancing your home

You will also need to work with a home appraiser if you want to refinance your mortgage. People refinance your mortgage for many reasons. Some people refinance their mortgage if they want a better rate whether that’s a lower monthly payment, a more favourable interest rate. Others refinance their mortgage if they want to borrow more money than they have for their current mortgage. 

As a homeowner, you would hire and pay for a home appraiser to come to your home and assess the value of your home and property. A property appraisal is important when you are trying to refinance your mortgage is important since it is a fair assessment of your home’s fair market value based on its size, age, the condition in it is, location, features, and previous sale prices. This is important because the market condition where you bought your home might have changed greatly between the time you were approved for a mortgage and the present moment when you are looking to refinance your home. If your home has greatly increased or decreased in value since you bought it this might influence your ability to be approved to refinance your mortgage.

Having a home appraiser come and see any of the upgrades and improvements you have made to your home since purchasing is beneficial. The original valuation for your home will not reflect any upgrades you have made but it is always good for an appraiser to see these changes. However, if your home is not in great condition and you have not been keeping up with repairs an appraiser will notice this as well and this will probably not bode well for you if you are trying to appraise your home.

Home appraisals for insurance purposes

It is also common to have a home appraiser come to appraise your home for insurance purposes as part of your homeowner’s insurance policy. This insurance appraisal serves a different from an appraisal when you are buying or selling a home, trying to qualify for a mortgage or refinance your home.

An insurance appraisal is important because it will help ensure that you are able to get the coverage you need and paying appropriate premiums for this coverage, that sufficiently covers you as a homeowner for the value of your home and its contents. During this time, the appraiser will take photos, an inventory of the contents of your, examining, and grading the value of the contents inside your home. The appraiser will then compare your home’s value to the value of similar homes in your area so they can calculate the value of your home and its contents. 

This appraisal will help you to work with your insurer to create a customized plan for you, with premiums that will cover the costs or repairing or replacing your home or its contents in case of an accident, fire, natural disaster, etc. Once you receive the appraiser’s report you can speak with your insurer about how they developed the criteria to assess and calculate the value of the contents inside your home and your home’s value. Then you can work with your insurer to choose a policy that best fits your unique needs and sufficiently covers you.

This appraisal and inventory of the contents inside your home could be helpful down the road in case some of your belongings or home is ever damaged. This means when it is time to deal with the insurance company you both will have a reference point for the inventory of items in your home, their value, and your home’s value if you ever need to repair or replace any items or your home in case of damage. 

This is also why you should do your best to keep a detailed inventory of the items in your home, especially anything that is particularly valuable. And you should update this inventory regularly and send it to your insurance company and keep the receipts of purchase for anything valuable. This means that in case you need to work with your insurance to have anything that has been damaged replaced you will have a starting point for the value of your belongings.

Having an up-to-date detailed, inventory with proof of purchase for valuable or expensive items will make it easier to work with your insurer to make sure you can more quickly repair or replace anything that needs to be changed. This can help to ensure that you receive the money to repair or replace anything that has been damaged more quickly since by doing this you are making it easier for you to file a claim and ensuring you are purchasing the correct type of insurance. This also can be helpful if you need to declare a loss for tax purposes and apply for financial assistance after a natural disaster.

Related article: New Brokerage Splitting Listing Fees for Buyer and Seller Savings

How do you find a professional to appraise your home?

If you are working with a lender or insurance company, chances are that they will be able to recommend someone they trust and work with regularly to appraise your home. However, if you still need help finding an appraiser and/or will be needing to hire an appraiser by yourself, or want to know what to look for, there are some things you should be keeping in mind.  You will want to hire a professional who is licensed or certified in your area, who is ideally a member of a professional association of home appraisers and regularly participates in professional development for real estate appraisers.

If you are unsure or want to see further proof of their qualifications, you can ask to see their license or certification documents before hiring them. You can also search websites such as Angie’sList.com, Google or use directories for professional home appraisers. The following are a few suggestions for professional associations of appraisers, which have online directories for real estate appraisal professionals, where you can learn more about how appraisal works, and find professionals in your area.

The Appraisal Institute

The Appraisal Institute is a global professional association of real estate appraisers based in the United States. The Appraisal Institute has almost 18,000 professional members working in nearly 50 countries around the globe. They aim to advance professionalism, ethics, global standards, methodologies, and practices with professional development for people working in property economics worldwide.

Home Appraisal Institute of Canada (AIC)

The Home Appraisal Institute of Canada (AIC) purports to be Canada’s leading association for property valuation, with over 5,400 members working across Canada and the globe. For the past 80 years, the AIC has worked with its 10 affiliated provincial associations in Canada to grant the Accredited Appraiser Canadian Institute (AACI™) and Canadian Residential Appraiser (CRA™) designations. Here is a link to their Ontario page.

Canadian National Institute of Real Estate Appraisers (CNAREA)

The Canadian National Association of Real Estate Appraisers is a national, non-profit, independent, professional association which licenses, certifies, and regulates the real estate and property appraisers working in Canada. Here is a link to their page where you can use their directory of affiliated appraisers to find a professional working in your area.

How much will a home appraisal cost in Ontario?

If you are getting your home appraised you can expect to pay anywhere from $350 to $700 or more to have a professional real estate appraiser, come in and do an appraisal for your home and property. How much you will end up paying will depend on a variety of factors. The size and type of home will help determine how much you can expect to pay since larger homes or homes with multiple units tend to cost more to appraise than a smaller home or a home that is only one unit. The geographic region where your home is located might also influence how much this might cost. Finally, if your home is more expensive or considered a luxury home, you can expect to pay more for an appraisal. As mentioned earlier, you can probably expect to receive a report from your appraiser anytime between three days and two weeks after the appraiser.

Who usually hires a professional appraiser to appraise a home?

Usually, home buyers and lenders will hire an appraiser when they are looking to buy a home. Lenders will have an appraiser, assess a home and property’s fair market value before deciding on how much money to lend a borrower to purchase a home. A home buyer will probably hire an appraiser if their lender has not had an appraisal done or if they are doing an all-cash offer before closing on a home. While homeowners usually hire professional appraisers while in the process of applying to refinance their mortgage. Finally, insurance companies work with appraisers who specialize in doing insurance appraisals when working with homeowners to develop a policy and schedule for premiums so a homeowner can be covered under a homeowner’s insurance policy. Others and parties not listed might hire an appraiser for other reasons. However, these tend to be the most common groups of people who will employ the services of a professional appraiser. 

Who usually is responsible for paying a home appraiser’s fee?

In a real estate transaction depending on where you are, either the seller or buyer is responsible for paying this fee. If the buyer is getting a home appraised for a mortgage, their lender might cover this cost. Your lender might have you work with an appraiser they trust and usually work with. If you are getting a home appraisal so you can apply to refinance your mortgage, you, the homeowner, will be responsible for paying the appraiser’s fee. 

 When you are getting your home and property appraised for insurance purposes, you can expect the insurance company to cover the cost of an appraiser and to send one of their own appraisers or hire an independent professional to appraise your home and the value of your home’s contents.

Things to Consider when Getting a Home Appraised

When having your home appraised there are some things you should keep in mind, this is especially true if a home is being appraised for a real estate transaction, whether you are the seller or whether you are the buyer.

Things to consider as a seller when your home is being appraised

If you are selling your home and you receive a low appraisal, one that is lower than the previously agreed-upon sale price and that is accurate, you will probably need to lower your asking price in order to sell your home. While you can always try to hold out and wait for an all-cash buyer who does not require a home appraisal as a condition for purchasing your home, this is unlikely to happen. And even if this does happen, it is unlikely that you will be able to charge them more since people tend to not enjoy paying more than something is worth.

If you are selling your home, you should not be surprised if recent distressed sales in your neighbourhood or area might influence your home’s fair market value. A distressed sale for real estate happens when a homeowner is selling a property or home urgently, at a loss because funds tied up in an asset are needed quickly. Distressed sales often happen at a loss because the owner might need the funds from the sale of the home or property to pay for debts or another emergency. This also might include people selling their homes in a short sale, foreclosures, after divorces or people are relocating. 

A short sale happens when people are attempting to sell the property even though the current market value is less than the amount than they owe their lenders. It is not uncommon for distressed sales to lead to net losses and bring down property values in a neighbourhood or area. If your property is in much better shape and better maintained than the other homes that were distressed sales, you might be able to have the fair market value that your home was first appraised at adjusted to reflect and account for this difference between your home and surrounding homes. 

Depending on where you are there might be municipal, provincial, state, or federal guidelines that are meant to eliminate inflated appraisal values to prevent another housing crisis a la the 2008 housing crisis in the United States which in part fueled the 2008-2009 financial meltdown in the United States. These guidelines might mean it could be difficult for you to challenge a low appraisal value. It might be worth it for you challenge a lower appraisal value for your home as a seller, but it might not always be worth it to try to challenge the appraised fair market value for your home. If you are unsure about whether or not you should try to do this, you should speak with the real estate broker representing you as the seller.

What happens if the appraisal comes back with a different figure than the sale price of a home?

 In an ideal world, if you are buying a home you will want the appraisal, which is indicative of the fair market value for the home or property you are looking to purchase to come at the agreed-upon sale price or above the agreed-upon sale price. If the appraised fair market value for the home or property you are looking to buy matches the agreed-upon sale price for a property, then you should be able to move forward with the real estate transaction and be able to close. However, things do not always work in the way wish we they did. You might be interested in purchasing a home and the appraisal comes back much higher than the previously agreed-upon sale price or you might be purchasing a home and the appraisal for the home’s fair market value comes back lower than the agreed-upon sale price. You will have some choices on how to proceed in both of these situations as they might be a bump in the road for your real estate transaction or might stop this transaction from even happening altogether.

While there are times when it might not make sense to challenge a home appraiser’s report, there are definitely times when you should challenge their report. For example, if there are errors in a home appraiser’s report related to your home’s size, square footage, number of bedrooms or bathrooms, these are instances when you should challenge an appraiser’s findings. Sometimes appraisers might not know an area that well as they should, and they undervalue your neighbourhood and location, so they accidentally appraise your home and property at a lower value than it is worth.

Whenever you see any errors in a home appraiser’s report, whether they are factual or clerical that result in an appraisal that is too low, you should go over the report with a fine-tooth comb and be ready to pay for a second appraisal to have an additional opinion and be ready to dispute these errors with the appraiser and provide evidence and facts to support your argument(s) that their original appraisal was flawed. The appraiser might agree with you and revise the equation they used to assess a home’s value and change their initial valuation.

A second appraisal can be helpful in these situations since the second person might not make these mistakes that cause them to undervalue your home and property. It will not be fun to pay more money to have a second person come in and appraise your property, however, if the first report significantly undervalues your home and property, you might be able to continue the transaction if the appraised value of your home matches the previously agreed-upon sale price. Or as the seller, you might be able to ask the buyer to pay you even more if the appraisal comes in for more than the previously agreed-upon sale price.

What happens if the figure from the appraisal is lower than the previously agreed-upon sale price?

While ideally sellers and buyers do not want a sale to fall through, a lower appraisal, one that is lower than the previously agreed-upon sale price can benefit you as a buyer. If you have a lower appraisal, you can use this lower appraisal to negotiate with the seller and see if they are willing to lower the previously agreed-upon price, to a price that reflects the true market value. This is important since no reputable bank, financial institution or lender is going to be willing to lend you more money than a home is worth.

A reputable bank or lender will probably only lend you no more than 80% to 90% of the value of the home, this depends on the type of mortgage you have and how well-qualified you are as a borrower. In other words, if you have excellent credit, a low debt-to-income ratio and other factors which make you a more qualified borrower, you might be able to have a down payment that is less than 20% of the home’s value.

Whenever lenders are deciding to loan you money to buy a home, they tend you loan an amount of money that is a certain percentage of the home’s sale price or the home’s appraised value, whichever is less. If the home is appraised at less than the purchase price, the lender will probably lessen the amount of money they are loaning to you to reflect this change and reflect the value of your home. 

When this happens to you as a buyer you will have a few options for how you can proceed in this situation. Hopefully, you would have written your offer contract to include a contingency that the property’s appraised value will match the sale price or be higher than this price, which means you can walk from this transaction. Alternatively, as mentioned earlier you can negotiate with the seller to lower the sale price to the property’s appraised fair market value. However, a seller might not be willing to negotiate or believe that a low appraisal inaccurate, so they might be unwilling to lower their price. If a disagreement on the appraisal is what is putting a stop on this deal, you can always dispute this valuation with the original appraiser if there were any mistakes in their report or hire a second appraiser.

If you the buyer or the seller believes there was an error in the valuation of the home and property in question, you can dispute the appraisal. You should research what the comparable sales were used in making this determination and consult your real estate agent or broker to whether or not the appraiser used these comparable sales appropriately. You should consult your real estate agent or broker in this situation since they might be more familiar with the area, home values, and past sales than the appraiser. Your real estate agent or broker might be able to find additional comps that support your argument that the appraiser undervalued the home and property.

If the seller is unwilling to negotiate and you really want this home, you can always put more money down to make up for the difference between the appraised value for the home and the home’s sale price. This greater down payment is meant to fill in the difference between the amount of money a lender is willing to give you to purchase a home, based on the fair market value and the sale price.

What happens if the figure for your home’s appraisal is higher than the previously agreed-upon sale price?

Ideally, you want the appraisal to come in at the previously agreed-upon sale price for a home or for it to be higher than the previously agreed-upon sale price. If the home you are looking to buy’s appraised value is greater than the previously agreed-upon sale price, this tends to bode well for you. However, if the home’s appraised value is significantly greater than the home’s sale price, the seller might want to negotiate a higher sale price where you are paying them more because the home is worth more than you previously thought. 

In this situation, when the seller wants you to pay more money for their home to better reflect their home’s fair market value, you might be able to qualify to borrow more money from the bank to cover the cost of a loan. Banks will have to loan you as much as your home is worth if the home you are willing to buy is worth more than you had previously expected and need to pay more money to reflect this higher valuation, ideally, your lender will be willing to lend you more money. 

If your lender is not willing to lend you more money to cover the cost of a higher sale price, then you might have to come up with more money to make a larger down payment to account for the difference in the amount of money a bank is loaning you vs. the higher sale price. Or you can always walk away from a sale if you are unable to afford the higher sale price for the home.

How this higher valuation might affect you and your mortgage might be different depending on you, your lender, the type of loan you are getting, your credit and financial situation, etc. If your home appraisal is greater than expected, if you are putting less than 20% of the property’s purchase price down you will still probably need to get Private Mortgage Insurance (PMI). Private Mortgage Insurance (PMI) protects lenders in the event that you foreclose on your home and this insurance policy will cover them for up to 20% of the losses of you foreclosing on your home early on in your home loan. Usually, lenders are supposed to cancel your PMI once you have accrued 22% equity in your home, based on your home’s purchase price, not your home’s appraised fair market price. How PMI works for you will depend on you, your lender, the type of loan, etc. 

If your home appraisal comes back higher than the sale price and the seller is willing to accept previously agreed-upon sale price, you will still be responsible for a certain percentage of the down payment and your loan will be only for a certain percentage of the home’s sale price. A higher than expected appraisal might be good for you if you are trying to refinance your home since it can allow you to avoid needing to buy Private Mortgage Insurance (PMI) to refinance your home.

Related article: I’m Selling My House. What Do I Need to Know?

Conclusion

While a home appraisal is an important part of the home buying process as well as the processes associated with insuring your home and refinancing your home, it is a process that does not get that much attention. However, it is an important step for all three of these processes. The outcome of your home and property appraisal can make or break a real estate deal and it can help determine whether or not you will be able to refinance your mortgage. And a home appraisal has the potential to determine how much your homeowner’s insurance premiums will be, how much insurance you will purchase, how much insurance you need, and can determine how much money you can expect to receive if any of your belongings are damaged and need to be replaced or you experience a fire or natural disaster. This means that you need to appraisals seriously as part of the home buying process and as a homeowner. 

While home appraisals are important for homeowners, sellers, and buyers, they are not something that you should fear as a seller, buyer, or homeowner. However, if you are a seller or homeowner, do not be surprised if recent distressed sales in your neighbourhood or area might change the valuation of your home. However, if this is an issue for you there are ways to dispute your home’s valuation if your home is in much better condition than the sale of properties that happened during a distressed sale. 

As a seller or a homeowner, there are small improvements and changes you can make to your home that will help improve your home’s appraised fair market value. You can deep clean your home, put unnecessary clutter, repaint the interior or exterior to make the home look nicer, do any minor repairs, stage your home to make it look nicer this could be as simple as cleaning and painting. You could do some things to improve a home’s curb appeal, adding plants, flowers, shrubs, weeding the garden and making it look nice. You can also keep a list of improvements you have done for the home, make small improvements that will not cost you a lot but add value, learn what buyers and appraisers are looking for in homes. Finally, you can see how your home compares to other comparable homes for sale or that have recently sold. You can visit open houses and look at comparable homes online to see how your home compares.

As a home buyer, you will want the appraisal to come through at the agreed-upon sale price or to be greater than the agreed-upon sale price set out in your contract, this will mean that your sale will proceed as planned. If your home appraisal comes through and the fair market value for the home is lower than the agreed-upon sale price this can cause issues for you that might delay your home buying process or mean that you will not continue to close on a given home. 

However, it is important to remember that buyers and sellers have a vested interest in having a transaction successfully go through. This means that you might need to negotiate with the seller to get a fairer price and work with the bank to figure out what they will be willing to lend you given the home’s valuation. There might be cases when a seller believes that a low valuation from a home appraisal is not accurate and they might not be willing to negotiate with buyers, you should be willing at this point to walk away and not continue to buy this property.

As a homeowner looking to refinance your home, there are some things you can do to help ensure that a home appraisal goes through successfully for you. These include staging your home, keeping your home in good condition, and making upgrades that will add value to your home. You can also provide an appraiser with documents related to the home’s history, such as tax valuation, comparable sale prices for other similar homes in your area, sale history for your home, a data-sheet with your home’s survey information, a list of upgrades or improvements you have made, and more. You want to give your appraiser some space to do appraise your home and do your best to help ensure that they have a pleasant experience since this can help improve the appraisal report your lender receives.

If you are concerned about having your home appraised for insurance purposes, this is a routine process. You should be prepared for this process to take at least 30 minutes and know that it may last a few hours or longer. You should be honest with the insurance appraiser about the true value of your items and home so you can ensure that you are getting sufficient coverage for your home and belongings. It is tempting to undervalue your home and how much your stuff is worth, so your monthly home insurance premiums are lower. But if you do this and your belongings cost more than you have declared and you need to replace them, this could end badly with you not getting enough money to replace anything that has been damaged. 

As noted earlier, you will want to keep a detailed inventory of your belongings that you update regularly, with proof of purchase for anything expensive as applicable and send this to your insurance company. As the Scouts say, “Always be prepared,” you will not suffer if you are over-prepared or too organized. If something does happen and you need to make repairs in your home after a natural disaster or fire or replace items, being prepared and organized can help ensure your claim is paid more quickly and simplify this process for you and your insurance company.

An accurate home appraisal no matter the reason why you are having it done is important for you as a homeowner, seller, and/or buyer. If you are selling your home it might be a good idea for you to be present at the appraisal with the real estate agent or broker representing you as the seller in the sale to help ensure that you can answer any questions or clear up any doubts that the appraiser might have. This also applies if you are having your home appraised for insurance purposes or if you are having your home appraised to see if you can qualify to refinance your home. Finally, do not be surprised if your home appraisal as a seller, buyer, or homeowner is different than you might think it should be, this is a common occurrence.

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