You may have heard of the term “appraisal” but you may not what it is specifically and when you might need it when buying a home. On top of that, home appraisals do not come for free so it’s a good idea to find out if the appraisal cost will be coming out of your pocket, or not.
What is a Home Appraisal
An appraisal is an estimate of the value of a home you want to buy or a home you already own. There are a few different reasons to call for an appraisal but primarily done at the request of a lender. Lenders want a reasonable idea of the value of a property in the current market before they are willing to lend against the home. Appraisals are sometimes done when and owner needs mortgage insurance too as it is required by the Department of Finance and mortgage insurance companies such as CMHC and Genworth
Who Pays For The Home Appraisal
Although lenders request most appraisals, the borrower pays the appraisal cost. The lender is actually ordering the appraisal on the borrower’s behalf to protect the buyers too. Sure, the lender doesn’t want to lend on a poor investment, but you sure don’t want to buy one either. Many first-time homebuyers also get appraisals done on their own. Why order an appraisal for yourself?
First off, appraisals ordered by the lender are their property and they do not share the report with you. The lender is the client, not you. However, when you order the appraisal yourself the appraiser works for you and you have access to all the information. They can also do a lot of things to help you. A good appraiser can help you to establish a reasonable sale price, check that your property taxes are reasonable, and help you figure out whether renting your property is more beneficial to you instead of selling. Should you decide to rent out your property you will also have the current market value for tax purposes in writing.
Home Appraisal Costs
Appraisal costs do vary so shop around. Most home appraisals start around $350 plus HST but they can go above $500 plus tax. Despite the fee, an appraisal is one way to check out the value of your investment. Costs depend on complexity and how easily the appraiser can access comparable data.
There are three basic approaches to appraisals. The first method uses comparison of your property to others that have sold, didn’t sell and are for sale now on the market. Another method involves calculating how much it would cost to reproduce the property, less amounts for wear and tear over the years. Finally, appraisers may use a strictly mathematical approach to calculate possible income on the property. By far, the comparative method is the most common and so the least expensive.
Be sure to use a Canadian Residential Appraiser who is governed by the Appraisers Institute of Canada. CRA members are qualified to offer valuation and consulting services and expertise for individual, undeveloped residential dwelling sites and dwellings containing not more than four self-contained family housing units.
Have questions about home appraisal cost and buying a home for the first time? Contact us today to speak to a mortgage professional and learn all of your options and how you can save thousands on your next home purchase.