Bank Appraisal vs Real Estate Appraisal: Appraised Value Differences

by Richard Morrison
January 25, 2020
Buying
0

Buying a home can feel like navigating through murky waters, especially when facing terms like bank and real estate appraisals. These assessments, pivotal in Canada’s mortgage world, provide critical insights about a property’s market worth.

This article breaks down the nuances of both bank and real estate appraisals, empowering you with knowledge to make informed decisions during your home-buying journey. Ready? Let’s demystify these assessment types together!

Table of Contents show

Key Takeaways

Bank appraisals are conducted by independent appraisers hired by lenders to determine the market value of a property for mortgage approval purposes.
Real estate appraisals, on the other hand, are conducted by licensed professionals and provide an unbiased estimate of a home’s value in the current market.
Bank assessments focus more on protecting lenders’ investments, while real estate assessments provide valuable insights for buyers and sellers during the home buying and selling process.
Factors such as condition of the home and recent sales data play a significant role in both types of assessments.

Understanding Appraisals

An appraisal is a professional assessment that determines the market value of a property. It is required when buying or selling a home and plays a crucial role in mortgage approval.

What is an appraisal?

An appraisal is essentially a comprehensive evaluation conducted by a professional, independent appraiser to estimate a property’s worth. The evaluation process aims to provide an unbiased value of a home at the time of purchase or refinancing.

It is used by lenders such as banks and other financial institutions to confirm that the loan they’re providing aligns with the actual market value of the home. The purpose behind this practice is safeguarding their loan investment should the buyer fail to pay back their mortgage – effectively ensuring that they can recover sufficient funds from selling it in an unfortunate event like foreclosure.

Typically, it’s buyers who shoulder the cost for this essential part of mortgaging which usually ranges somewhere between $350-500.

When is an appraisal required?

Navigating the process of buying a home includes several critical steps, and property appraisal stands as one of them. Lenders usually mandate evaluation to validate that the home’s price aligns with its actual worth; this becomes particularly crucial whenever a mortgage is involved in purchasing the house.

In most instances, an evaluation requirement arises for low-ratio purchasers holding uninsured mortgages where their down payment stands at 20% or above. Exceptions occur when potential buyers, already insured by entities like CMHC have less than 20% for a down payment or situations where down payments outstrip loan amounts, thus eliminating need for an evaluation.

The onus often falls on prospective homeowners who should budget for appraisal costs which typically hover between $350-500 in Canada.

Bank Appraisals for Mortgages

Bank appraisals for mortgages are a crucial step in the home buying process, providing both lenders and buyers with an unbiased estimate of a property’s value.

Home Appraisal Process

Navigating the course of bank evaluations is much like mapping out a journey. First, it begins with your lender ordering an evaluation to validate the home’s worth against the mortgage loan you’re seeking.

The magic happens when an independent licensed professional swings into play. Conducting both interior and exterior inspections, they evaluate everything from square footage, age of house to even landscaping details.

Factors considered in a bank appraisal

In a bank valuation, various factors are taken into consideration to determine the value of a property. These factors include the condition of the home, recent sales in the area (comparables), as well as any unique features or upgrades that may impact its value.

The appraiser also looks at factors such as square footage, location, interior design, landscaping, and age of the house. All these elements help to establish an accurate estimate for the property’s market value.

How do appraisers estimate value for a bank appraisal?

Appraisers use a combination of factors to estimate the value of a property for a bank valuation. They consider factors such as the condition of the home, recent sales of comparable properties in the area, and market trends.

Appraisers also take into account the location, size, and features of the home, as well as any improvements or renovations that have been made. By analyzing all these elements together, appraisers are able to provide an objective assessment of a property’s worth for mortgage lending purposes.

Real Estate Appraisals

Real estate appraisals are conducted by independent, licensed professionals who provide an unbiased estimate of a home’s value.

The process of real estate appraisals

Real estate valuation are an important part of the home buying and selling process. These valuations are conducted by independent, licensed professionals who provide an unbiased estimate of a home’s value.

The process begins with the appraiser visiting the property and conducting a thorough inspection of both the interior and exterior. They take into account factors such as square footage, location, age of the house, landscaping, and interior design.

The appraiser also considers recent sales in the area to determine market trends and comparables that can be used to assess the value of the property.

Factors considered in a real estate valuation: Price of a Property & More

A real estate valuation takes into account several factors to determine the market value of a property. These factors include the home’s physical condition, size, location, age, landscaping, and interior design.

The appraiser also considers recent sales of comparable properties in the area to assess the property’s value accurately. Other important considerations include historical property data, supply and demand trends in the real estate market, and any relevant changes or developments in the surrounding neighborhood.

Differences between Bank Appraisals and Real Estate Appraisals

Bank appraisals focus primarily on the property’s value from a lender’s perspective, while real estate appraisals provide an unbiased estimate of market value.

The condition of the home is also taken into account differently, with bank assessments considering it as a factor for loan protection, while real estate assessments assess it based on overall market appeal.

Condition of the home

The condition of the home plays a significant role in both bank assessment and real estate assessments. Appraisers assess the overall state of the property, including its interior and exterior, to determine its value.

They consider factors such as the age of the house, any updates or renovations that have been done, and the general wear and tear. A well-maintained home with modern amenities is more likely to receive a higher estimation value compared to a poorly maintained property that requires extensive repairs or updates.

It’s important for buyers and sellers to understand that the condition of the home can greatly impact its appraised value, so it’s crucial to keep up with regular maintenance and make necessary improvements before putting it on the market or applying for a mortgage loan.

Comparables

Comparables, or comparable sales, are a crucial factor considered in both bank estimations and real estate estimations. These are properties that have recently sold or are similar to the subject property in terms of size, location, age, condition, and other relevant features.

Appraisers use comparables as benchmarks to determine the market value of the property being appraised. They analyze these recent sales to see how much similar homes have sold for and make adjustments based on any differences between them and the subject property.

Comparables help ensure an accurate estimation by providing valuable insights into the current real estate market trends and prices in a specific area.

Dealing with Low Appraisals

When faced with a low appraisal, there are several options available to homeowners and homebuyers. These include disputing the estimation, seeking a second opinion, or funding the difference themselves.

Disputing the appraisal

If an estimation comes in lower than the agreed-upon purchase price, buyers have options for disputing the estimation. One option is to gather additional evidence to support a higher value. This can include recent sales of similar properties in the area that were not considered during the initial estimation.

Another option is to hire a second appraiser for an independent assessment of the property’s value. Finally, if all else fails, buyers may need to fund the difference between the appraised value and purchase price themselves in order to secure financing from the bank.

It’s important for buyers to be proactive and advocate for their best interests when dealing with a low appraisal.

Getting a second opinion

If you find yourself facing a low appraisal and disagree with the value, it may be worth considering getting a second opinion. By obtaining another assessment from a different licensed appraiser, you can gather additional information to support your case.

This can be especially beneficial if you believe that certain factors were overlooked or not adequately considered in the initial estimation. Keep in mind that while getting a second opinion can provide valuable insight, it does come with an additional cost.

Funding the difference

If an appraisal comes in lower than the agreed-upon purchase price, buyers have the option to fund the difference themselves. This means that they will need to come up with additional funds to cover the gap between the appraised value and the purchase price.

This can be a significant challenge for many buyers, especially if they have already put down a large down payment. However, it is important to note that some lenders may be willing to work with buyers to find alternative financing options or adjust loan terms in order to bridge this gap.

Protecting Yourself from Low Appraisals

To protect yourself from low estimation, review comps, educate the appraiser, have a rainy day fund, and work with an experienced realtor. Don’t let a low estimation derail your home buying or selling process – learn more on how to safeguard your investment.

Review comparables before making an offer

Before making an offer on a home, it’s crucial to review comparables in the area. Comparables, also known as “comps,” are recently sold homes that are similar in size, location, and condition to the property you’re interested in.

By comparing these properties, you can get a better understanding of their sale prices and how they relate to the home you want to purchase.

Reviewing comps allows you to gauge whether the listing price is fair or if it needs negotiation. It gives insight into market trends and helps determine what other buyers have been willing to pay for similar properties.

Taking the time to analyze comps can empower you with valuable knowledge during negotiations and ensure that your offer aligns with current market conditions.

By researching comps before making an offer, you increase your chances of putting forth a competitive bid that accurately reflects the property’s value.

The role of the listing agent in educating the appraiser

The listing agent plays a crucial role in educating the appraiser about the property being sold. By providing detailed information on the home’s features, upgrades, and any unique qualities, the listing agent can help ensure that the appraiser understands the true value of the property.

The importance of having a reserve fund

Having a reserve fund is crucial for both buyers and sellers when it comes to dealing with low valuations. In the unfortunate event that an evaluation comes in lower than expected, having a reserve fund can help bridge the gap between the estimated value and the agreed-upon purchase price.

This ensures that the transaction can proceed smoothly without any financial hurdles or delays. Additionally, a reserve fund provides peace of mind and financial security, serving as a safety net for unexpected expenses or emergencies that may arise during or after the home buying process.

By working with an experienced realtor clients can protect themselves from potential financial strain.

Conclusion

In conclusion, understanding the difference between bank appraisals and real estate appraisals is essential for both buyers and sellers in Canada. While bank appraisals focus on protecting lenders’ investments, real estate appraisals provide an unbiased estimate of a home’s value.

By being informed about the appraisal process and taking steps to protect themselves from low appraisals, individuals can navigate the home buying and selling process with confidence. Work with an experienced realtor like Richard Morrison to ensure you have all the necessary information for a successful transaction.

FAQs:

Q: What is the difference between a bank appraisal and a real estate appraisal?

A: A bank appraisal is an assessment of the market value of a property that is conducted by an appraiser hired by your lender. A real estate appraisal is an assessment of the market value of a property that is conducted by an appraiser hired by you, the buyer.

Q: When do I need a bank appraisal when buying a home?

A: If you are financing your purchase with a loan, most lenders will require a bank appraisal to ensure that they are lending enough money for the purchase. If you’re paying cash, then you don’t necessarily need one.

Q: What does an appraisal report include?

A: An appraisal report includes information such as the age of the home, its condition, features, size, location and more. It also includes comparables in the area to help determine what price range it should be valued at.

Q: How much does it cost for a home appraisal?

A: The cost of an appraisal depends on factors such as the size and complexity of your home and where it’s located. Generally speaking, typical appraisals range from $300-$800.

Q: What happens if my home’s appraised value comes in lower than I anticipated?

A: If your home’s appraised value comes in lower than expected, there are several options available to you. You can either choose to renegotiate with the seller for a lower price or make up the difference with additional funds out-of-pocket.

Q: Do I have to get an appraisal when I purchase a home in 2022?

A: Yes, if you are financing your purchase with mortgage loan in 2022 then most lenders will require that you obtain an appraisal before closing on your loan.

Q: What happens if there’s competition for my dream home in today’s competitive housing market?

A: In today’s competitive housing market, buyers often face competition when trying to buy their dream homes. One way to stand out from other buyers is by being pre-approved for financing so that you can make your offer more attractive. Additionally, having an appraisal done before making an offer can help demonstrate that you understand what your dream home is worth and will not overpay for it.

Q: How does getting an appraisal help me as a potential home buyer?

A : An appraisal helps protect potential buyers from overpaying for their dream homes which can save them thousands of dollars down the line. Plus, many lenders require that buyers provide them with proof of an accurate assessment or they won’t approve their mortgages.

What is the Difference Between a Bank Appraisal and a Home Appraisal?

The key difference between a bank appraisal and a home appraisal is who is commissioning the appraisal. A bank estimation comes from the bank and is required as part of the mortgage process, whereas a home estimation comes from the seller or buyer and is used to determine fair market value.

Can a Real Estate Agent Conduct an Appraisal?

No. A real estate agent cannot conduct an appraisal. An appraisal must be conducted by a certified home appraiser. A real estate agent can, however, provide a comparative market analysis (CMA) to the client which is an informal estimate of a property’s value.

Ready to turn your real estate dreams into reality? Contact Richard Morrison, Vancouver’s top realtor with 20+ years of experience. As a Medallion Club member and RE/MAX Hall of Fame award winning agent, he’s the expert you need on your side. Whether buying, selling, or investing, Richard’s personalized approach and deep market insights ensure a successful transaction. Reach out to Richard today at (778) 900-2235 and make your real estate journey seamless and rewarding.

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