We get many questions from clients who think that we don’t order appraisals until everything else in financing is done and that the appraisals is just to “finalize some numbers,” and nothing could be further from the truth. The appraisal is the cornerstone to the entire mortgage deal. If the bank is lending YOU money, they are doing so on the basis of your financial strength, and that of the collateral (the home).
The appraisal is a fundamental part of the purchase process, and takes 2-3 days to do (unless rural takes 5-10 days) and costs around $265 (unless rural is around $500-$750 depending on how remote).
Your broker will (should) know the time on ordering an appraisal, and will order it when he or she thinks appropriate. Certain purchases require an appraisal 100% of the time (former grow ops, stated income, equity deals) and some don’t. You need to trust your broker on when to order it, who to order it from (not all lenders accept all appraisers – usually they have an “approved list”), and what a reasonable price is.
Lastly, the appraisal is $265 – $500 on a purchase that is going to cost several hundred thousand dollars. It’s the “cost of doing business” and you shouldn’t begrudge your bank (or any lender) for requiring it, as it confirms the value of their security (the house you are buying).
Transcript of Video Blog:
Hey, everybody, Rowan Smith from the Mortgage Centre.
I wanted to cover a topic today, which is appraisals and what part in the process they hold. When you’re going to require them, and when you’re not going to require them for financing. Oddly enough, the more you put down, the greater chance you’re going to need an appraisal.
Whenever you buy something that’s CMHC-insured [Canada Mortgage and Housing Corporation], for example, five or 10 percent down, your appraisal is done electronically by the lender, by CMHC, who has an internal valuation model that they use. They’ll look at that model, determine whether the price you’re paying is fair based on comparable sales.
Actually, it’s often an automated process, unless you’re on the high end of the property values, in which case, it may have a person actually involved. If you do have a person involved in the process, they may insist on an appraisal anyway.
The standard rule is up to 20 percent down, you’re probably not going to need an appraisal. Now if you have more than 20 percent down, you will. That’s totally counterintuitive because you’re putting more money down.
Why do they need an appraisal if you’re putting more cash down? The answer is that when you’re not putting 20 percent down, CMHC is insuring that loan so the bank isn’t taking the risk. CMHC is the one taking the true risk that they’re going to lose money in the file.
If you put more than 20 percent down, then the bank is taking the full amount of the risk. In those circumstances, they’re going to insist on an appraisal for sure.
So does that ever stop? Well, with some banks, no; it’s always an appraisal. In a lot of cases, if you’re going to put 50 percent or more down on a property, then you may not need an appraisal. You may just be able to use the tax assessments or a desktop appraisal, which is just something that an appraiser does based on historical sales.
In the event that you’re looking at buying a property, and a broker is telling you that you need an appraisal, you have to realize this is an integral part of the process. Your home, your property, is the security for that mortgage. So to think that they’re going to take your word at the value or they’re going to look at other homes that are for sale, that’s not the lender’s job. That’s the appraiser’s job.
You can guarantee that there’s going to be some form of appraisal or value estimation on every single deal that you do. So if you or somebody you know is being asked to get an appraisal by their lender, this is standard procedure.
For the Mortgage Centre, I’m Rowan Smith.