Appraisal - Q & A
Q: What is an appraisal?

A: In its most simple form an appraisal is an estimate of value. An estimate of value from a licensed and accredited real estate appraiser will adhere to strict guidelines which require the appraiser to use recognized and supportable methods of determining value, while remaining un-bias.

Q: Why should I hire an appraiser?

A: As mentioned befor, an appraiser produces an un-bias opinion of value, using proven methods and techniques. An accredited appraiser can assist you in determining a realistic and supportable value for your home.

Q: How does an appraiser come up with a value?          

A: The most common approaches to value for residential property are the Cost Approach and the Direct Comparison (or Sales Comparison) Approach.

The Cost Approach is based on the economic principle of substitution which states that a “reasonable” person would not pay more for a property than the cost of acquiring equal land and building an equally functional building on that land. Cost manuals and estimates are used to calculate an estimate of the building as-if new, and then depreciation is deducted to account for loss in value over time (wear-and-tare). Land value is then added into the equation.

The Direct Comparison Approach, also known as the Sales Comparison Approach is a systematic review of similar properties that have sold on the open market, and applying adjustments for value influencing items to make the comparables more similar to that of the subject property. The direct comparison approach is the most widely accepted method of valuation and produces the most creditable results when applied properly.

Q: Where does an appraiser get this information?

A: Appraisers research many sources to obtain information when preparing an appraisal. In Alberta we can use the Online Land Titles System (Spin) to access land transfers and title transfers. We can also access sales data from the MLXChange system (also known as MLS), that the realtors use when listing and selling properties. Other information can be obtained from the City, County, Town, Village, Third-Party Data Providers, Articles, Media, Government Agencies, and such.

Q: Why would a person need a home appraisal?

A: There are many reasons for an appraisal; some of which are Mortgage Financing, Re-Financing, Divorce Settlement, Estate Planning, Estate Settlements, Expropriation, Insurance Estimates and such. An appraiser should be used whenever a value of property is required to be professional, accurate, and un-bias.

Q: Who Actually Owns the Appraisal Report?

A: The appraisal report is owned by the “client”. The Canadian Uniform Standards of Professional Appraisal Practice (CUSPAP) and the Uniform Standards of Professional Appraisal Practice (USPAP) define client as follows: 

                        “CLIENT: the party or parties who engages an appraiser in a specific assignment. “

                        Source: CUSPAP

Many appraisers interpret the above to mean “he/she who orders (or requests) the appraisal is the client. Regardless of who is paying for the report”. This creates some confusion as homeowners typically pay for the report, but are then denied a copy or denied further details about their appraisal. The Appraisal Standards require “client confidentiality” and unfortunately, only the client/“party or parties who engaged” the appraiser for the specific assignment are privy to the appraisal report. However, the client (banker, broker, appraisal Management Company, or such) can release a copy of the report to the homeowner if their own company policy permits.

 
Q: Can the appraiser talk to other people about my home and the reasons for my appraisal?

A: No. An appraiser is required to maintain confidentiality with their clients.   The person ordering the appraisal is quite often the “client” and the appraiser owes that Client the privilege of confidentiality. All details of the appraisal report can be discussed with the client only. (See above definition of Client)

Q: What does the appraiser look for inside my home?

A: The appraiser needs a firm understanding of the property being appraised to make the most accurate assumptions while costing and selecting the comparables used in the appraisal report. Items such as Hardwood flooring vs. carpet, Built-in features, upgrades, quality and finish are all taken into consideration. In many cases it has been proven that the more detailed the inspection, the more accurate the results.

Q: The appraiser only spent ten minutes in my house. How can he or she estimate a value in such a short time?

A: If the appraiser (which all should) has taken photos of each room, the details can be transcribed at a later time. This will shorten the time the appraiser needs to inspect and still give him/her the ability to accurately inventory the property for valuation. Some appraisers take notes on site, and/or fill out forms to keep on record. All of which influence the amount of time spent on site.

It is also required that appraisers measure the home and/or verify the measurements if they are being taken from a third-party source. If your appraiser did not measure, we would recommend you contact the firm immediately.

Q: How does the appraiser determine the square footage of my home's living area?

A: As mentioned above, the appraiser is required to measure or confirm measurements for your property. As a supplement to that, the appraiser should be comparing to previous listings, assessment records, or any other third-party measurement. Outside dimensions are used, and items such as fireplace jet-outs or lower levels that are below ground level should not be included in the measurements for square footage. It is also standard to only use above-grade floor area in the calculations for total livable floor area. Basements are not typically considered when discussing the “size” or “square footage” of a home. 

Q: I am refinancing my house with a local bank or broker. If my bank appraisal comes out higher than my tax value, will my taxes go up?

A: No. The appraisal is separate than the tax assessment and they typically do not influence one-another. Quite often the assessor is unaware than an appraisal is even being performed. It is also important to note that in the Province of Alberta, assessors are required to assess properties using a process called mass appraisal (see Assessment Q&A on our site) and not site specific/fee appraisal.

Q: What is ''Market Value?''

A: Many sources have different definitions. However, the most commonly referred to are as follows:

The Municipal Government Act (MGA) states: “market value” means the amount that a property, as defined in section 284(1)(r), might be expected to realize if it is sold on the open market by a willing seller to a willing buyer;

The IAAO provides a more comprehensive definition as follows:

The most probable price (in terms of money) which a property should bring in a competitive and open market under all conditions requisite to a fair sale, the buyer and seller each acting prudently and knowledgeably, and assuming the price is not affected by undue stimulus. Implicit in this definition is the consummation of a sale as of a specified date and the passing of title from seller to buyer under conditions whereby: 

1)The buyer and seller are typically motivated; 
2) Both parties are well informed or well advised, and acting in what they consider their best interests; 
3) A reasonable time is allowed for exposure in the open market; 
4) Payment is made in terms of cash in <Canadian> dollars or in terms of financial arrangements comparable thereto; 

The price represents the normal consideration for the property sold unaffected by special or creative financing or sales concessions granted by anyone associated with the sale.

Source: http://www.agecon.purdue.edu/crd/localgov/Second%20Level%20pages/def_market_value.htm

 Q: Can I "shop-around" for financing with an appraisal?

A: If you are the "client" and/or the person that ordered the appraisal from the firm, than yes you can.  If it is a copy of the appraisal received from a lending institution that had originally ordered the appraisal than no you cannot.  In either situation, most brokers and lending institutions are "fair" with their rates and if approached will act reasonably to keep your business.  If you have a broker you prefer to deal with or like dealing with, we recommend you be honest and up-front with them to carry on business.  Dealing with people you know and trust will make the entire process seem less complicated.

 
Q: What is an appraisal?

A: In its most simple form an appraisal is an estimate of value. An estimate of value from a licensed and accredited real estate appraiser will adhere to strict guidelines which require the appraiser to use recognized and supportable methods of determining value, while remaining un-bias.

Q: Why should I hire an appraiser?

A: As mentioned befor, an appraiser produces an un-bias opinion of value, using proven methods and techniques. An accredited appraiser can assist you in determining a realistic and supportable value for your home.

Q: How does an appraiser come up with a value?          

A: The most common approaches to value for residential property are the Cost Approach and the Direct Comparison (or Sales Comparison) Approach.

The Cost Approach is based on the economic principle of substitution which states that a “reasonable” person would not pay more for a property than the cost of acquiring equal land and building an equally functional building on that land. Cost manuals and estimates are used to calculate an estimate of the building as-if new, and then depreciation is deducted to account for loss in value over time (wear-and-tare). Land value is then added into the equation.

The Direct Comparison Approach, also known as the Sales Comparison Approach is a systematic review of similar properties that have sold on the open market, and applying adjustments for value influencing items to make the comparables more similar to that of the subject property. The direct comparison approach is the most widely accepted method of valuation and produces the most creditable results when applied properly.

Q: Where does an appraiser get this information?

A: Appraisers research many sources to obtain information when preparing an appraisal. In Alberta we can use the Online Land Titles System (Spin) to access land transfers and title transfers. We can also access sales data from the MLXChange system (also known as MLS), that the realtors use when listing and selling properties. Other information can be obtained from the City, County, Town, Village, Third-Party Data Providers, Articles, Media, Government Agencies, and such.

Q: Why would a person need a home appraisal?

A: There are many reasons for an appraisal; some of which are Mortgage Financing, Re-Financing, Divorce Settlement, Estate Planning, Estate Settlements, Expropriation, Insurance Estimates and such. An appraiser should be used whenever a value of property is required to be professional, accurate, and un-bias.

Q: Who Actually Owns the Appraisal Report?

A: The appraisal report is owned by the “client”. The Canadian Uniform Standards of Professional Appraisal Practice (CUSPAP) and the Uniform Standards of Professional Appraisal Practice (USPAP) define client as follows: 

                        “CLIENT: the party or parties who engages an appraiser in a specific assignment. “

                        Source: CUSPAP

Many appraisers interpret the above to mean “he/she who orders (or requests) the appraisal is the client. Regardless of who is paying for the report”. This creates some confusion as homeowners typically pay for the report, but are then denied a copy or denied further details about their appraisal. The Appraisal Standards require “client confidentiality” and unfortunately, only the client/“party or parties who engaged” the appraiser for the specific assignment are privy to the appraisal report. However, the client (banker, broker, appraisal Management Company, or such) can release a copy of the report to the homeowner if their own company policy permits.

 
Q: Can the appraiser talk to other people about my home and the reasons for my appraisal?

A: No. An appraiser is required to maintain confidentiality with their clients.   The person ordering the appraisal is quite often the “client” and the appraiser owes that Client the privilege of confidentiality. All details of the appraisal report can be discussed with the client only. (See above definition of Client)

Q: What does the appraiser look for inside my home?

A: The appraiser needs a firm understanding of the property being appraised to make the most accurate assumptions while costing and selecting the comparables used in the appraisal report. Items such as Hardwood flooring vs. carpet, Built-in features, upgrades, quality and finish are all taken into consideration. In many cases it has been proven that the more detailed the inspection, the more accurate the results.

Q: The appraiser only spent ten minutes in my house. How can he or she estimate a value in such a short time?

A: If the appraiser (which all should) has taken photos of each room, the details can be transcribed at a later time. This will shorten the time the appraiser needs to inspect and still give him/her the ability to accurately inventory the property for valuation. Some appraisers take notes on site, and/or fill out forms to keep on record. All of which influence the amount of time spent on site.

It is also required that appraisers measure the home and/or verify the measurements if they are being taken from a third-party source. If your appraiser did not measure, we would recommend you contact the firm immediately.

Q: How does the appraiser determine the square footage of my home's living area?

A: As mentioned above, the appraiser is required to measure or confirm measurements for your property. As a supplement to that, the appraiser should be comparing to previous listings, assessment records, or any other third-party measurement. Outside dimensions are used, and items such as fireplace jet-outs or lower levels that are below ground level should not be included in the measurements for square footage. It is also standard to only use above-grade floor area in the calculations for total livable floor area. Basements are not typically considered when discussing the “size” or “square footage” of a home. 

Q: I am refinancing my house with a local bank or broker. If my bank appraisal comes out higher than my tax value, will my taxes go up?

A: No. The appraisal is separate than the tax assessment and they typically do not influence one-another. Quite often the assessor is unaware than an appraisal is even being performed. It is also important to note that in the Province of Alberta, assessors are required to assess properties using a process called mass appraisal (see Assessment Q&A on our site) and not site specific/fee appraisal.

Q: What is ''Market Value?''

A: Many sources have different definitions. However, the most commonly referred to are as follows:

The Municipal Government Act (MGA) states: “market value” means the amount that a property, as defined in section 284(1)(r), might be expected to realize if it is sold on the open market by a willing seller to a willing buyer;

The IAAO provides a more comprehensive definition as follows:

The most probable price (in terms of money) which a property should bring in a competitive and open market under all conditions requisite to a fair sale, the buyer and seller each acting prudently and knowledgeably, and assuming the price is not affected by undue stimulus. Implicit in this definition is the consummation of a sale as of a specified date and the passing of title from seller to buyer under conditions whereby: 

1)The buyer and seller are typically motivated; 
2) Both parties are well informed or well advised, and acting in what they consider their best interests; 
3) A reasonable time is allowed for exposure in the open market; 
4) Payment is made in terms of cash in <Canadian> dollars or in terms of financial arrangements comparable thereto; 

The price represents the normal consideration for the property sold unaffected by special or creative financing or sales concessions granted by anyone associated with the sale.

Source: http://www.agecon.purdue.edu/crd/localgov/Second%20Level%20pages/def_market_value.htm

 Q: Can I "shop-around" for financing with an appraisal?

A: If you are the "client" and/or the person that ordered the appraisal from the firm, than yes you can.  If it is a copy of the appraisal received from a lending institution that had originally ordered the appraisal than no you cannot.  In either situation, most brokers and lending institutions are "fair" with their rates and if approached will act reasonably to keep your business.  If you have a broker you prefer to deal with or like dealing with, we recommend you be honest and up-front with them to carry on business.  Dealing with people you know and trust will make the entire process seem less complicated.

 
 


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