Step 15 to Buying a Home: The Appraisal

Congratulations! If you’ve gotten this far it means you’re on a roll. Now let’s talk about appraisal. One of the final and most important step in getting a mortgage is a satisfactory appraisal. This is usually ordered by the mortgage lender and the appraisal must satisfy the purchase price in order to move on and get approved for the amount of mortgage. If you purchase a home in Toronto and anywhere in Ontario and your downpayment is below 20%, the default insurer (In Canada, it’s one of the 3 insurers : CMHC, Sagen and Canada Guaranty) will pay for the cost of appraisal and it will be done when the mortgage lender sends your file to the insurers. It takes 2-3 business days to complete this as the insurers will send it to one of their registered appraisers and then write a report about it. If the number aligns with your purchase price, then all is good. If not, you have the option to pay for the difference. The bank or mortgage lender will only fund what is on the appraisal. If you cannot come up with the difference then your mortgage will get declined.

If your downpayment is 20% or more and you are taking 30 year amortization mortgage to pay lower on the monthly mortgage payment, then you are on the hook to pay for appraisal. Depending on the location and the size of the home, appraisal can start at $300-400. If you’re the one ordering the appraisal (if you choose us to process your mortgage, then we will order this on your behalf so you can go sitting pretty while you wait for the result). Only the appraiser goes inside the property to take pictures of the home, usually about 15 mins and then takes pictures of the outside surroundings. He then get some comparables using the current sold homes, current sales, historical pricing trends, cost to rebuild, etc depending on what the mortgage lender requires. If the current housing market is hot, the mortgage lenders can even look at automatic valuation model to speed up the appraisal process.

Want to know more about appraisal? Read this blog post to learn more!

A few tips about the appraisal:

You do not need to attend.
The buyer’s Realtor® does not attend either. Only the appraiser attends.
Once you pay for the appraisal, it generally takes about a week before the appraiser comes out to conduct the appraisal. They are very busy. After that it usually takes 2-3 days or so for the report to be written. The appraisal report is sent directly to the mortgage lender and you and the agent do not get a copy of the report. If we process your mortgage, we might be able to see the report and tell you the appraised value – you will not receive a copy of the appraisal.
If the property appraised at the purchase price, nothing further needs to be done and the closing process will proceed forward as planned.
If the property appraised for more than the purchase price, congratulations! That means we got you a great deal and you’ll have instant equity in your home on the day you move in!
If the property appraised for less than the purchase price, we have a problem. That means the bank will only give you a loan for the appraised value. In this case, we then go back and renegotiate the purchase price down with the sellers, ideally to the appraisal price. If they won’t come down to the appraisal price, then you can choose to either walk away and get your deposit money back or bring the additional funds to closing. For instance, if the purchase price is $800K, but the appraisal only came in at $750K and the sellers won’t go any lower than $780K you have to decide if you’re going to bring an extra $20K on top of your down payment and closing costs to closing or walk away from the deal.

That’s why it’s important to choose a good Realtor (like us!) right from the start so you can learn about the market before you even look at the property ad make an offer so you don’t run into this situation to begin with.