Do you know what your home is worth? Perhaps you have a vague idea, based on current market reports and the fact that your neighbour’s place sold for 10% over asking, just last month. But, put on the spot, most of us have no idea how much our homes are really worth. That’s why we need advice. For many that means calling a realtor. But real estate agents are a bit like family doctors: They are both the first line of inquiry when it comes to your health, or home, whatever the case may be. But, if you really have a concern, or you’re truly serious about buying or selling, you need to seek out a specialist for expert advice. In real estate, that means hiring a mortgage broker for your finances, an inspector for the home’s structural integrity and an accredited appraiser for an accurate market evaluation.
For somewhere between $350 and $500, an appraiser will evaluate your property using an internationally recognized, 25-point inspection that examines the current market, the local neighbourhood and your individual house. That the process is standardized is one reason lenders are required to use independent appraisal reports when evaluating many mortgage applications. Yet, the vast majority of buyers and sellers don’t bother to seek out this expert advice.
“Truth is, we’re a well-kept secret,” says Keith Lancastle, CEO of the Appraisal Institute of Canada (AIC). “By investing a few hundred dollars, a homeowner can determine an accurate, unbiased market price of their home, at that given point in time.” Does that mean every homeowner should pay for a report? No. But here are three specific situations where it makes sense.
You’re relying on the equity in your home
If you’re one of the 36% of Canadians who say they’ll use their homes to help fund their golden years, then spending $500 to get an accurate assessment of your net worth is a smart investment. Even though most advisors will value your home by using the historical average annual appreciation rate of 2%, this doesn’t take into consideration factors that can add or detract from your home’s value. “An appraisal is a way to find out how much your home is really worth, so you can make educated decisions about your financial future,” says Lancastle.
You’re considering a home reno
This one’s for the HGTV set. In order to develop a comprehensive picture of your home, your neighbourhood and the marketplace, an appraiser will talk to real estate professionals, building inspectors and renovators, as well as analyze current listings and sales data, explains Natalie Roy Patenaude, an accredited appraiser with AIC. All this goes into your report, along with an assessment of how much return you might expect on your proposed renovations. This helps you accurately assess how much you’ll get back on that $60,000 kitchen you plan to install, says Patenaude.
You’re living in an overheated market
Finally, if you’re contemplating selling a home in an overheated market, it pays to have your own market evaluation. Without this report, you run the risk of watching a sure thing go belly up.
Say, for instance, you underpriced your home at $799,000. On offer day, you get seven bids and the price quickly climbs to $1,150,000, which you gladly accept. But banks often send out an appraiser before finalizing mortgages on high-priced homes. If the value were to come back at $850,000, that’s how much the bank will agree to loan the buyer. And, if they can’t find the extra cash, the sale could fall through. Had you invested in your own appraisal report, it might have prompted you to ask more precise questions, such as how much the buyers are putting down and where it’s coming from. (It’s fine for your realtor to ask these questions.) Finding out one buyer is stretched while another has a tonne of equity could make the difference between a dead offer and a firm deal.
Just don’t take an appraisal to the bank
While there are benefits to an appraisal, you can’t assume that the market value offered in the report is the maximum price you’ll get on the sale of your home. It’s not. Appraisals are notorious for undervaluing property, although Lancastle would argue that’s not the case: “We are the sober second thought when it comes to the price of a home.” Buyers are led by emotions, not logic and certainly not market sustainability. He insists appraisers offer an accurate value for your home, even if you might get more in the open market.
That said, not everyone needs an appraisal report to value their home. Personally, I have my own network of specialists. And my husband is a renovation contractor, while I’m a licensed realtor. But if you don’t have access to market expertise, spending a few hundred dollars for an unbiased assessment of what your largest asset is really worth just might be a small price to pay for some peace of mind.
Ask Home Owner columnist Romana King your real estate question »