11 Mar Property Appraisals & What You Need to Know
Property Appraisals & What You Need to Know
When purchasing a property in Ottawa and the surrounding areas, one crucial step in the mortgage process is the appraisal. But what exactly is an appraisal, and why is it required? Here’s what you need to know.
What is a Property Appraisal?
An appraisal is a professional evaluation of a property’s value, typically required by lenders to assess the risk associated with the mortgage. The appraisal provides an unbiased estimate of the home’s market value, helping the lender determine an appropriate loan amount.
Key Points About Appraisals:
- Purpose of an Appraisal:
- An appraisal required by a lender is used to determine property value for lending purposes. Different lenders have varying requirements, and an appraisal for personal purposes may not be accepted by a lender.
- When is an Appraisal Required?
- Some lenders require an appraisal when the mortgage value is less than or equal to 80% of the suggested property value. In some cases, even mortgages as low as 20% of the property value may require an appraisal.
- Certain lenders use automated valuation models (AVMs). If the AVM supports the submitted value, an appraisal may not be necessary.
- High-ratio mortgages (where the down payment is less than 20%) rarely require appraisals since mortgage default insurance (e.g., CMHC) is involved.
- Factors That Trigger an Appraisal:
- Lenders closely examine MLS listings and property details. Any remarks that suggest potential issues—such as structural problems or unique property characteristics—may trigger an appraisal request.
- Cost and Scheduling:
- Appraisals are generally paid for by the client, and payment is required before the appraisal is scheduled.
- Costs vary depending on the property’s location, size, and complexity, as well as urgency. Rush appraisals often come at a higher cost.
- In a competitive market, securing an appraisal within a standard five-day condition period may be possible, but it depends on appraiser availability.
- Can an Appraisal Be Challenged?
- If a buyer disagrees with an appraised value, they may challenge it based on the comparables used by the appraiser. However, successful challenges are rare unless strong supporting evidence is provided.
- Impact of a Low Appraisal:
- Lenders base mortgages on the lower of the appraised value or the purchase price.
- If the appraised value is lower than the purchase price, the mortgage may still be funded, but the buyer may need to increase their down payment to cover the difference.
- Booking an Appraisal:
- Buyers should work closely with their mortgage provider to schedule the appraisal as soon as possible. Delays in receiving the report could impact the closing date.
Lender Variability: Exclusion of Outbuildings, Detached Garages, and Excess Land
A recent concern in the industry is the exclusion of certain property features in appraisals. Some lenders do not include outbuildings, detached garages, or land exceeding 10-15 acres in the appraised value, potentially impacting the approved loan amount.
Additionally, agricultural properties and hobby farms can also influence appraisal values. Lenders may assess these differently due to their income-generating potential, zoning regulations, or specialized use, which can further affect financing options.
This approach varies across lenders, and buyers of rural or large-acreage properties should verify appraisal policies beforehand. Working with a knowledgeable mortgage professional can help navigate these nuances and avoid surprises.
Final Thoughts
Appraisals play a vital role in the mortgage process, ensuring that the lender and buyer have a realistic understanding of a property’s value. While appraisal requirements vary by lender, understanding how they impact financing—especially for unique properties—can help buyers make informed decisions.
For any questions about appraisals or mortgage financing, don’t hesitate to reach out to your trusted mortgage expert!
Reni McNeil
Mortgage Brokers Ottawa
Apply online: www.renimcneil.ca
renim@mortgagebrokersottawa.com
License: 11759
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