What is a Home Appraisal?

Why Do I Need a Home Appraisal?

Depending on your mortgage lender and how much money you are putting down, the lender may or may not require an appraisal on the property. First, let’s talk about what a home appraisal is. Your lender is giving you hundreds of thousands of dollars and wants to be confident that the asset (your home) which is securing the loan is worth what you say it is. They want to be sure if they ever need to take back your property in case of default they are going to be able to sell it for atleast enough to cover the outstanding loan and any fees incurred with repossessing the property.

In most cases if you are putting down less than 20% and the mortgage is insured (via CMHC or one of the other insurers) there will not be an appraisal required. The insurer has a computer program that will verify the value of the house. In certain cases the insurer might still require an appraisal, but they will cover the cost.

Appraisals are more common in cases where the client is putting don more than 20% and the lender does not have the security of having the mortgage insured. They want to be 100% sure they are not taking on any uneccessary risk by lending on a property that is not worth enough.

…but I am getting a home inspection…does that count?

A home inspection is very different from an appraisal. A home inspector will spend hours going through the property to make sure there are no major structural/plumbing/electrical issues with the property. A home inspection is meant to protect you and not the lender. A home appraiser will not provide any opinion on the value of the property and therefore is of no use to the lender. That being said it is always a good idea to get a home inspection before you buy any property

A home appraisal is solely for the benefit of the lender. The appraiser will spend 10 minutes in the property looking around and taking pictures. They will usually only find obvious problems with the property and spend most of their time noting the finishes in the home. The second part of the process involves looking at comparable properties that have sold in the area in the last 60 days and what they sold for. This will allow him to com up with a comparative value for the property.

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