The ABCs of home appraisals
If a lender requires an appraisal of your home, you may wonder if it will affect your home insurance.
Appraisals may be required for any type of property - single-family homes, small and large rental properties, condominiums (townhomes or apartments), or office buildings, to name a few. Often when a report is completed for mortgage lending purposes, the homeowner is required to pay the appraisal fee but the appraiser’s client is the lending institution making a lending decision for the property based on the report.
Appraisals are frequently required to confirm the market value of the property and the equity when:
- A new mortgage loan is needed to finance the purchase of a property.
- A mortgage is renewed at the end of a term; or
- A consumer applies for a line of credit or a renovation loan
When it comes to real estate, the profession is nationally regulated by the Canadian National Association of Real Estate Appraisers (CNAREA) and the Appraisal Institute of Canada (AIC). These two institutions ensure that both consumers and appraisers understand the responsibilities of appraisers and the appraisal process itself.
It’s important to note that a home appraisal is different from a home inspection, which is a limited, non-invasive examination of the condition of a home, often in connection with the home’s sale. Inspectors examine the property from top to bottom for visible defects. Their main focus is on the roof, ventilation and HVAC, fireplaces, electrical, plumbing, foundations, structure, and appliances.
Appraisals of valuable contents
When a consumer with valuable contents buys a home insurance policy, choosing a qualified appraiser is in the best interest of the broker, the policyholder and the insurer. For personal belongings, there are numerous reasons to seek a professional appraisal, including planning insurance coverage, charitable donations, probate of an estate, or simply determining the value of your tangible assets.
However, not all personal property appraisers are created equal. Many belong to the International Society of Appraisers (ISA) or the American Society of Appraisers (ASA). Such accreditations provide a way for a client to verify credentials and membership and both their websites have a “find an appraiser” feature. Such affiliations also offer a process by which to file a complaint.
General tips on selecting an appraiser
According to the AIC, when looking for an appraiser make sure to:
- Ask an appraiser for their professional designation. Be sure it is from a strong professional association
- Ask if they have significant experience in the type of valuation services you need.
- Don’t be afraid to ask for references.
The appraisal process
If your home is being appraised, the appraiser will visit and assess your property and its neighbourhood. Factors they take into consideration for their report include:
- Local market trends: Economic trends play a role in the estimated value of a home. In a buyer’s market with lots of sellers, home prices tend to drop while in a seller’s market with fewer houses for sale buyers will be paying more.
- Amenities: These are the features that make up the house itself, such as the number and size of bedrooms, bathrooms, and living areas. It may include appliances, utilities, and home fixtures made with premium materials. Other amenities considered include parking areas, gutters, roofing, and general construction.
- Neighbourhood features: Different areas will be more desirable to different prospective buyers. Young professionals may be more attracted to homes closer to public transit, while families may pay more for schools and parks.
- Comparable properties: Appraisers will look at the value of similar properties in your area.
Tips to prepare for an appraisal
- Clean and declutter. This puts your home in the best possible light.
- Make repairs. A well-maintained home is more likely to be valued higher.
- Provide documentation. If you have made any recent upgrades, such as a new roof or updated kitchen, provide the appraiser with documentation to show the work that was done and how much it cost.
- Share neighbourhood information. This includes features of your neighbourhood that could increase its value, such as proximity to schools.
- Be present. Being on site means you can answer any questions or provide additional information.
Will it affect my insurance?
Your home’s appraised value doesn’t directly impact your home insurance premiums. Home insurance is primarily meant to cover the cost of repairing or rebuilding your home due to certain risks or events, not its market value.
During appraisal, risks like outdated wiring or old roofing affect your home’s market value and may lead your insurer to require repairs or updates for coverage.
Your home appraisal may also result in a higher or lower valuation of your home. If the appraiser gives a higher value than expected because you’ve made improvements or there are market changes, you may want to increase your insurance coverage. This ensures your policy can cover the home’s new value and any necessary future rebuilding or repairs.
- With files from Canadian Underwriter
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