Buying a new home is a multi-step process. Even once you have been approved for a mortgage and put an offer in on your dream home, you still aren’t quite done. Before that mortgage can go through, the home needs to be appraised.
What is a home appraisal and how does it work?
A home appraisal is an estimate of the market value of the home, based on multiple factors that include things like location, age of the home, and what type of condition it is in. It’s conducted by a licensed third-party professional, the appraiser, to keep things unbiased.
Home appraisals take place after your purchase has been accepted but before the mortgage has been finalized. This is because the lender wants to ensure that the house is actually worth the money that they are supplying to the purchaser. The main goal of a home appraisal is to justify what the buyer has agreed to pay for the home.
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How much does a home appraisal cost?
In Canada, you can expect to pay about $300 to $500 for a home appraisal, however, depending on the city and where you are located it might cost more. Typically, the lender will be the one responsible for hiring the appraiser, even though the buyer is footing the bill. If you do not need a mortgage, no appraisal is needed.
What does a home appraisal look for?
There are a lot of features and details that home appraisers look for when appraising a home, both interior and exterior. Here are some of the things that they look for and take into account:
- Square footage
- Number of bathrooms
- Number of bedrooms
- Updates vs remodels for kitchen and baths
- Foundation type
- Whether the basement is full or partial
- Crawl space and/or attic
- Materials used on walls, floors, and windows
- Appliances and amenities
- Lot size
- Type of driveway and car storage
On top of these factors, the appraiser will also consider the age of the home, the current condition it is in, as well as local housing market trends.
Who pays for the home appraisal?
Usually, the purchaser of the home will pay for the appraisal. Sometimes the lender will pick up the cost, but it may also hide that cost in the mortgage administration fees.
What is the difference between an appraisal and an inspection?
An appraisal determines the market value of the property. An inspection examines the physical structure of the home, from roof to foundation, to ensure that things are safe and in working order. The inspection can be done either before or after the appraisal.
What happens if the value is not the same as the agreed-upon sale price?
If the approval comes in at less than the sale price, the lender may now approve a smaller mortgage. In this case, you can try to renegotiate with the seller or find another lender and hope that the second appraisal will give you a higher value.