What is a home appraisal?

Home appraisals are a key part of the home buying and selling process. They involve a professional home appraiser determining the fair market value of your property. Understanding the home appraisal process is critical. We discuss how home appraisals work, the impact they have on the purchase price of your home, home insurance coverage, and a list of factors that impact appraisal value.

The home appraisal process explained

As mentioned, home appraisals involve a professional appraiser determining the estimated value of your home. Appraisers are known for their impartiality, using various methods to determine the fair market value of a property. Such methods usually include a combination of the following: an on-site inspection that takes into account location and home amenities, research on comparable properties in the area, and an examination of market trends.

The appraiser will do independent research either before or after the on-site inspection to determine the value of your property. For example, they will research the location of your house to gather information about the neighbourhood, crime rate, local amenities, public transit, and the quality of nearby schools, among other factors. They will also research comparable homes that were recently sold in your neighbourhood to give them a better idea of value. Finally, market and economic trends can have a major impact on the value of a home. Therefore, an appraiser will also consider the current state of the market, i.e. whether it is a buyer’s market or a seller’s market.

In terms of the on-site inspection, this will involve the appraiser visiting your home in person. The visit will be scheduled in advance and on the agreed-upon date, the appraiser will arrive at the home to inspect its interior and exterior. Home appraisals vary in length but could take anywhere between one to two hours. In addition to a general visual inspection, an appraiser may measure the home’s square footage and take note of the home’s condition. Specific details they will likely pay attention to include the number of bedrooms and bathrooms in your home, the quality of the fixtures and appliances, the condition of the utilities (e.g. plumbing, heating, and electrical systems), the square footage, and the condition of the exterior, such as the foundation, gutters, driveway, and construction materials. A complete list of what appraisers look at when inspecting a home is as follows:

• The number of rooms, bedrooms, bathrooms, closets, doors, and windows in the home, as well as whether the basement is finished or unfinished.
• The overall condition of the home, with attention paid to any damage.
• The condition of the household appliances, including the dishwasher, washing machines, HVAC units, oven, and more.
• The square footage of the home and of the land it sits on (the boundary line will be noted).
• The age and condition of the roof and foundation.
• The lighting and plumbing systems.
• The presence of any additional structures on the property, such as sheds, gazebos, or swimming pools.
• The condition of the sprinkler system.
• The presence of any special amenities or features on the property, such as hardwood floors, marble countertops, etc.
• Whether the house has been renovated or repaired.
• The number of fireplaces in the home.

As the appraiser makes their way through your home, you can expect them to take detailed notes. Why? For the appraisal report, which will be written after the fact and delivered to any relevant parties in the days or weeks following the inspection.

The appraisal report

The appraisal report is a detailed rundown of exactly what the home appraiser found. It will include a description of the home’s interior and exterior, comparable properties, the location, and current market trends. Many appraisal reports also include photos of the home both inside and outside from a variety of angles, as well as photos of each comparable property assessed. A hand-drawn sketch of the home’s exterior may also be included, as well as a map that lists the appraised home and any comparable homes used to determine the appraiser’s findings. Lastly, the report may include miscellaneous information that the appraiser used to determine the fair market value of the home, which could include public land records or tax records.

Are home appraisals required?

A seller may choose to conduct an appraisal on their own. However, they are not required. Oftentimes, though, mortgage lenders require appraisals for home insurance mortgages. This means that if you are a seller who wants to buy a home with a mortgage, the home you purchased will need to be appraised. The finalized amount that your mortgage lender agrees to lend you will depend on the appraisal value that is determined, especially as it compares to the purchase price you paid. Note that if the appraisal value is lower than the purchase price, the lender may not let you borrow as much money as you thought. Beyond buying a home with a mortgage, other scenarios in which conducting a home appraisal might be worthwhile are if you are refinancing your current mortgage or you are selling a home and do not know what price to list it at. In regards to the latter, think carefully before voluntarily scheduling a home appraisal as a seller, especially if you want to have your home appraised after you’ve already listed it. If a home appraisal is conducted after your home has hit the market, and the appraised value ends up being less than the list price, it might force you to reduce your listing process. At the very least, you would likely lose the upper hand in any buyer-seller negotiations.

Home insurance appraisals

One other situation in which a home appraisal may be used is when an insurance provider needs to determine the rebuild value of a home. In Canada, home appraisals for insurance companies are conducted by third party appraisers. The process is the same as that described above. However, the way the information is used is a little bit different, as it doesn’t involve the home buying process, nor the process of refinancing a mortgage. Instead, it relates to your home insurance policy. The insurer simply wants to have the assurance that the amount of coverage they offer you is enough to compensate you in the event that your home is damaged. Without a home appraisal, an insurance company could end up overestimating the rebuild value of your home and overcharging you. Conversely, if they were to underestimate the value of your home, they could undercompensate you, which reflects poorly on their business. Home appraisals usually help avoid this situation. However, if you need help changing house insurance after realizing that your current policy does not accurately cover you for the appraised value of your home, contact BrokerLink.

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It is also important to note that home insurance appraisals may also be conducted at the behest of either the insurance company or the policyholder during the claims process. This situation may arise if the insurance company and the policyholder disagree on the replacement cost of the policyholder’s damaged items. These types of home appraisals will have a third party appraiser pay particular attention to the combined value of the property as a whole. This means that rather than estimate the fair market value only, the appraiser will seek to estimate the value of the home, the land, and the personal belongings inside the home.

The cost of home appraisals

Home appraisals vary widely in price. While some can be as low as $500, others can be as high as $2,000. For this reason, we always recommend getting a quote from an appraiser before hiring them. The home appraisal cost will ultimately depend on the person or company, the location of the home, the level of detail and analysis involved, and the size of your home, with larger homes usually having higher appraisal fees. Appraisals may also cost more in rural areas, simply because there are fewer appraisers.

Please note that in most scenarios, unless an appraisal is voluntarily conducted by a seller, the buyer pays for the appraisal. For example, if a mortgage lender has made the loan contingent on a home appraisal, the buyer who is applying for the loan will be responsible for covering the cost of the appraisal.

What factors impact home appraisal value?

The following is a list of factors, beyond the obvious ones like location, the housing market, and square footage, that can have a direct impact on the appraised value of a home:

Design style

You might be surprised to learn that the design style of a home can impact the appraised value. The decor itself, such as artwork or future, will not be evaluated. However, any permanent design choices will be, such as flooring, countertops, or cabinetry.

Renovations made to the home

If the home has been renovated in any way, both major or minor, the improvements made will also impact the appraised value. Note that certain renovations will have a bigger influence on the value. For instance, renovated kitchens and bathrooms, professional landscaping, or a finished basement tend to have a larger return on investment than smaller updates like new flooring or windows.

Age and condition of the home and its utilities

The age and condition of the home directly relate to value, so these will also be assessed. Specifically, an appraiser will look at the roof, foundation, appliances, heating system, electrical system, and plumbing system. Generally, newer homes are valued higher than older homes, but this isn’t always the case, such as if the home is located in a historic neighbourhood or has unique property features.

Materials used to construct the home

Lastly, a home appraiser will take into account the materials used to construct your home when assessing its value. Higher-quality materials that are more durable may lead to a higher appraisal value. Further, environmentally sustainable materials can also increase a home’s value.

Preparing for a home appraisal

If you are a seller who recently listed their home and already has an interested buyer, you should start preparing for the eventuality of a home appraisal. We’ve put together a quick list of tips to ensure the home appraisal process runs as smoothly as possible:

Make a list of any repairs, renovations, or improvements made to the home

Sometimes, not all repairs or renovations are obvious. For this reason, we suggest making a detailed list of any repairs or updates that have been made to the home since you owned it. We recommend gathering documentation to back up your notes, such as invoices from the contracting company and the dates that the improvements were completed.

Be flexible

Home appraisers have busy schedules, and chances are, you want this home sale to be completed as quickly as possible - just as the buyer does. Therefore, be flexible when it comes to the timing of the home appraisal. If the appraiser is only available one day of the week, do your best to make it work.

Be home during the appraisal but give the appraiser their space

Being home during the appraisal will make the entire process a lot easier. Though a large part of an appraiser’s job is to visually inspect the home, they are likely to have questions that only you, the homeowner, can answer. For instance, they will probably ask about the condition of the property, what improvements have been made, and more. They may even have trouble locating something on your property, such as an HVAC unit. If you are home and available to provide them with the information they need, their assessment is likely to be faster and they will leave more informed than they otherwise would have.

Clean your home

Before the appraiser arrives, make sure you clean your property and remove any obstacles. For instance, if a heavy piece of furniture is on top of the entrance to the crawlspace, which they may want to evaluate, move it out of the way. If you have a pet, enclose them in a certain area of the home. Beyond cleaning and decluttering, you may also want to make a few minor repairs, as the condition of your home and the amount of visible damage can decrease its appraised value.

How home appraisals impact home insurance

We would like to offer one final note on home appraisals, and that is how home appraisals impact home insurance. First, home insurance is not a legal requirement in Canada, though if you are buying a home with a mortgage, your mortgage lender will likely require it (just as they will require a home appraisal too). You might think that home appraisals have no say in determining your property insurance rate, but this is not true. When an insurance company calculates your home insurance premium, they will take into account the estimated value of your home. In fact, this is one of the most important factors they will consider, as it directly impacts how much your insurer can expect to pay in the event of damage or losses.

Knowing the appraised value of your home is critical to ensure you aren’t paying too much for home insurance. If you think the cost of repair or replacement is too high in your insurance policy, you can speak with an insurance professional about an appraisal. Further, the value of a home can change over time, simply with the market or if you make renovations or updates to it. To avoid an insurance premium increase, we recommend notifying your insurance company of any changes that could impact your home’s worth as soon as possible. Depending on the estimated value of your home, both the value of the structure and the contents inside of it, an insurance broker can recommend the best coverage for you, which could even be high-value home insurance.

Contact BrokerLink to learn more about home appraisals and how they can impact home insurance costs

If you still have questions about home appraisals in Canada, contact BrokerLink. As a full-service insurance brokerage with expertise in home insurance, we can answer your burning home appraisal questions. We can also give you tips on how to ensure your home appraisal goes smoothly, explain the ways in which the appraised value of your home can impact your property insurance costs, and let you in on the industry’s best-kept secrets for saving money on home insurance (e.g. through home insurance tax deductibles). Plus, when it comes time to purchase a home insurance policy for your new home, we can help with that too! We offer free home insurance quotes to Canadian residents, which can be easily obtained online, over the phone, or in person at any one of our Canadian branches. For expert tips, advice, and information, contact BrokerLink today.

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Home appraisal FAQs

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