One of the key methods in valuing a residential property involves comparing properties that have recently sold within the neighbourhood or general area, that offer similar or somewhat similar characteristics to the subject property being valued.
The objective of the appraisal is to estimate the price that the subject property would most likely sell for if exposed to the marketplace. Comparing recently sold properties to the subject property are used as benchmarks in formulating an opinion of market value. Comparable sales represent what other informed buyers in the marketplace are willing to pay for similar (features, characteristics and location).
Adjusting the sale price of the comparable sales to the subject property are based on key differences between each of the sales and the subject property. Usually, no two properties are exactly the same, as a result of these differences, the appraiser applies adjustments to the sale price of those comparable sales to reflect their differences (features, characteristics and location). The adjusted sales price of the comparable sales then provide a range of value to guide the appraiser in estimating the market value for the subject property.
What to Expect During a Property Inspection
An inspection is just one of the many tasks performed by an appraiser. Appraiser’s must be familiar with the property inspection process, and observe the components and characteristics of the subject property that will influence value in the marketplace. The appraiser’s inspection takes into account a number of elements including but not limited to:
- the physical characteristics of the dwelling and any outbuildings
- quality of interior and exterior finishes, upgrades, mechanical components, landscape
- the condition of the improvements and
- any deficiencies or required repairs
In addition to understanding the dynamics of the real estate market, appraisers also have construction skills and knowledge, which are fundamental to their training. Appraisers also rely on the expertise of industry professionals where building characteristics are more complex. Whether it is a consumer, mortgage agent, or lending institution that engages an appraiser to value a home, the appraiser will:
- schedule a convenient time for an inspection
- plan for 20-40 minutes for the inspection depending on the size and characteristics of the home
- collect as much information as possible during the inspection of the property and improvements
- take photographs to provide a visual representation of the data described in the report
- ask the homeowner about important features of the property, as well as any upgrades or extras
Please Be Aware
Consumers must be mindful that under the Personal Information Protection and Electronic Document Act (PIPEDA), the appraiser must obtain the homeowner’s or occupants consent either in writing or verbally, prior to taking interior photographs.
Consumers often want a preliminary estimate of value before the appraiser leaves the property.
It is important for consumers to be aware that most of the valuation process occurs after the inspection.
The inspection allows the appraiser to gather sufficient information to properly describe the property.
Estimating the market value requires the appraiser to complete a thorough analysis of market conditions and market activity. It is often a complex process that involves collecting and analyzing several comparable properties which have recently sold to form a reliable estimate of market value.
As a consumer, this is what you are paying for: an independent and unbiased opinion of value by a qualified appraisal professional.