Frequently Asked Questions
An appraisal is the act or process of estimating value. It can be given orally, but it is usually a written statement of market value, or value for loan purposes or value as described by the appraiser of an adequately described property as of a specific date.
A real estate appraiser is a professional whose services are required by private, corporate and governmental bodies to evaluate real estate (real property) for a variety of reasons. The fundamental role of an appraiser is to provide a professional opinion, usually an estimate of market value, to be used in making real estate decisions.
Real estate appraisals might be required for, but not limited to, the following uses:
- Purchase or sale
- Extension of mortgage credit
- Expropriation by a public body
- Insurance: coverage, claim or settlement
- Litigation (determination of marital or business assets)
- Asset valuation
- Land-use studies
- Feasibility analysis
- Determination of value of an Estate
As with other professional disciplines and in keeping with changing socioeconomic forces, appraisal theory and standards evolve continually. Appraisers must acquire a knowledge of sociology, economics, geography, mathematics, public administration, political science, engineering, accounting and law. All these areas provide the information and the knowledge that is required in the appraisal process. Of course, in an area where the appraiser's knowledge is insufficient to meet the requirements of a specific assignment, a consulting specialist can be retained to provide the required information.
As set out in the Uniform Standards of Professional Appraisal Practice (USPAP), every appraisal prepared by a member of the Appraisal Institute of Canada must comply with Standards Rule 2-2 and must contain the following elements:
- identify and describe the real estate being appraised
- state the real property interest being appraised
- state the purpose and intended use of the appraisal
- define the value to be estimated
- state the effective date of the appraisal and the date of the report;
- state the extent of the process of collecting, confirming and reporting data
- state all assumptions and limiting conditions that affect the analysis, opinions and conclusions
- outline the information considered, the appraisal procedures followed, and the reasoning that supports the analyses, opinions and conclusions
- outline the appraiser's opinion of the highest and best use of the real estate, when such an opinion is necessary and appropriate
- explain and support the exclusion of any of the usual valuation approaches
- describe any additional information that may be appropriate to show compliance with, or clearly identify and explain permitted departures from the specific guidelines of Standard Rule 1
- include a signed certification in accordance with Standards Rule 2-3
USPAP specifies that there are several acceptable formats of appraisal reports including a "Self-Contained Appraisal Report", a "Summary Appraisal Report" and a "Restricted Appraisal Report", as outlined on the following Summary of Appraisal Reporting Formats. The essential difference among the three options is in the use and application of the terms describe, summarize and state. Describe is used to define a comprehensive level of detail in the presentation of information. Summarize is used to define a more concise presentation of information. State is used to define the minimal presentation of information.
According to USPAP, there are two appraisal types; a complete appraisal without departure, and a limited appraisal with departure. Within the two appraisal types there are three appraisal formats which, in order of level of detail, are the "Self-Contained Report", the "Summary Report" or the "Restricted Report".
These three formats differ in the use and application of the level of detail. The three levels of detail are further defined by the terms describe, summarize and state.
In communicating an appraisal report, each appraiser must ensure that:
- the information analysis utilized in the appraisal was appropriate
- significant errors of omission or commission were not committed individually or collectively
- appraisal services were not rendered in a careless or negligent manner
- a credible, supportable appraisal report was communicated
The Appraisal Institute of Canada requires that real estate appraisers are designated with the Institute. The designated appraiser is trained to render an unbiased opinion based upon extensive education and experience requirements. To become designated, appraisers must fulfill rigorous education and experience requirements. In addition, appraisers must abide by a strict industry code of ethics and comply with national standards of practice for real estate appraisal. The rules for developing an appraisal and reporting its results are insured by enforcement of the Canadian Uniform Standards of Professional Appraisal Practice (CUSPAP).
In most real estate transactions, the appraisal is ordered by the lender. While the home buyer pays for the report as part of the closing costs, the lender retains the right to use the report or any information contained within. The home buyer is entitled to a copy of the report - it's usually included with all of the other closing documents - but is not entitled to use the report for any other purpose without permission from the lender.
The exception to this rule is when a home owner engages an appraiser directly. In these cases, the appraiser may stipulate how the appraisal can be used; estate planning or tax challenges, for example. If not stipulated otherwise, the home owner can use the appraisal for any purpose.
Market value or fair market value is the most probable price that a property should bring (will sell for) in a competitive and open market under all conditions requisite to a fair sale, the buyer and seller, each acting prudently, knowledgeably and assuming the price is not affected by undue stimulus. Implicit in this definition is the consummation of a sale as of a specified date and the passing of title from seller to buyer under conditions whereby: (1) buyer and seller are typically motivated; (2) both parties are well informed or well advised; (3) a reasonable time is allowed for exposure to the open market; (4) payment is made in terms of cash in Canadian Dollars or in terms of financial arrangements comparable thereto; and (5) the price represents the normal consideration for the property sold unaffected by special or creative financing or sales concessions granted by anyone associated with the sale.
The Real Estate appraiser is not a home inspector nor does he/she do a complete home inspection. An inspection is a third-party evaluation of the accessible structure and mechanical systems of a house, from the roof to the foundation. The standard home inspector's report will include an evaluation of the condition of the home's heating system, central air conditioning system (temperature permitting), interior plumbing and electrical systems; the roof, attic, and visible insulation; walls, ceilings, floors, windows and doors; the foundation, basement, and visible structure.The Real Estate appraiser is not a home inspector nor does he/she do a complete home inspection. An inspection is a third-party evaluation of the accessible structure and mechanical systems of a house, from the roof to the foundation. The standard home inspector's report will include an evaluation of the condition of the home's heating system, central air conditioning system (temperature permitting), interior plumbing and electrical systems; the roof, attic, and visible insulation; walls, ceilings, floors, windows and doors; the foundation, basement, and visible structure.
Simply put, the difference is night and day. The CMA relies on vague market trends. The appraisal relies on specific, verifiable comparable sales. In addition, the appraisal looks at other factors like condition, location and construction costs. A CMA delivers a ''ball park figure.'' An appraisal delivers a defensible and carefully documented opinion of value.
But the biggest difference is the person creating the report. A CMA is created by a real estate agent who may or may not have a true grasp of the market or valuation concepts. The appraisal is created by a certified professional who has made a career out of valuing properties. Further, the appraiser is an independent voice, with no vested interest in the value of a home, unlike the real estate agent, whose income is tied to the value of the home.
Typically, appraisers are employed by lenders to estimate the value of real estate involved in a loan transaction. Appraisers also provide opinions in litigation cases, tax matters and investment decisions.
Gathering data is one of the primary roles of an appraiser. Data can be divided into Specific and General. Specific data is gathered from the home itself. Location, condition, amenities, size and other specific data are gathered by the appraiser during an inspection.
General data is gathered from a number of sources. Local Multiple Listing Services (MLS) provide data on recently sold homes that might be used as comparables. BC Assessment records and other public documents verify actual sales prices in a market. And most importantly, the appraiser gathers general data from his or her past experience in creating appraisals for other properties in the same market.
The first step in most appraisals is the home inspection. During this process, the appraiser will come to your home and measure it, determine the layout of the rooms inside, confirm all aspects of the home's general condition, and take several photos of your house for inclusion in the report. The best thing you can do to help is make sure the appraiser has easy access to the exterior of the house. Trim any bushes and move any items that would make it difficult to measure the structure. On the inside, make sure that the appraiser can easily access items like furnaces and water heaters.
The cost of an appraisal depends on several factors that may differ from property to property, such as the type of report needed and the intended purpose of the appraisal. Once our appraiser has a clear understanding of these, he/she can provide you with a more precise quote.
The average residential appraisal will take approximately 30 minutes depending on the property size and type. Rural properties may require additional time. For commercial properties, appraisals can take upwards of two hours depending on the property type and size.
Residential appraisal reports are normally completed 48 hours from the time of the inspection. In certain circumstances, appraisers can complete their report within 24 hours of the inspection. However, more complex and commercial properties require more time and may take weeks to complete a report.
When you order an appraisal directly from Advance Appraisals Inc., you are the sole owner of the report you receive. Copies can be released only with your approval. When a lender or broker orders an appraisal, on the other hand, he or she becomes the legal owner of the report—regardless of whether or not you paid for it. If you decide to change your broker or lender before a deal is made, you would not have access to the report.
The appraisal report is a legal document with a clearly identified purpose (for example, mortgage financing or divorce/separation). It can only be utilized for the purpose in which it was intended.
We supply you with a third-party opinion and fair market value that is unbiased and relies on market data. The reflected exposure time within the appraisal, which indicates the window in which you may achieve the market value, can vary affecting the sale price of your home. If the bank requires a shorter exposure time, it will reduce the market value of the appraisal.
An appraisal report is valid for a period of six months to one year depending on the bank or lender reviewing the document. Since property values fluctuate with market conditions, a bank or lender will require either a new report or an update of the original report to reflect the current market value.
Appraisals are done during regular office hours, but exceptions can be made on a case-by-case basis.
Appraisers are bound by professional rules of ethics and a strict confidentiality agreement not to disclose any information except with the client or the individuals/institutions approved by the client who ordered the appraisal. In most cases, our client is hired on behalf of the homeowner or purchaser. To discuss any information, we need written approval from the ordering client.