How Does a Home Appraisal Work in Ontario

How Does an Appraisal Work on My Property?

As the housing market continues to outperform expectations, homeowners may be keen to tap into existing equity in their homes to help with immediate financial goals. Renovations, consolidating debts, helping to pay primary monthly mortgage payments are just some of the possible reasons to refinance using your home as leverage.

There are several variables that a lender will consider on the road to structuring a second mortgage. Existing homeowners will be required to demonstrate suitable equity in their property, preferably a low debt ratio and Loan-To-Value will be calculated to determine the overall mortgage amount.

A Lender will also be assessing the current appraised value of your home which is determined by an appraisal of your property. Based on the appraisal, terms, and amount of a second mortgage can be calculated.

What Adds Most Value to a House?

There are things that you can do to increase the value of your home. This in turn will positively affect the overall appraised value determined by an appraiser.

  • Focus on key renovations that can be achieved including kitchen renovations, bathroom renovations, exterior or basement. Updating any of these areas has the potential to increase the current appraised value of your property.
  • Look at any structural issues that need immediate attention. An appraiser will be scrutinizing any structural deficits which can negatively impact the final appraised value.
  • Try to align home updates with other comparable properties in your area to add value to your property.  

Keys to a Successful Refinance

It is quite straightforward really. When lenders are deciding to approve mortgage requests on existing property for a second mortgage, they need to have information on several key issues. He/she will be asking themselves key questions:

  • What is the current state of the property? 
  • Is there a need for any major renovations?
  • How do the upgrades compare to similar properties in the neighborhood?
  • What is the resale value of similar properties in the area?

When refinancing, key elements are weighed very carefully by a prospective lender. One word that relates considerably to both the appraisal process and the ultimate decision made by a lender is any relevant comparable properties.  Real estate value is directly related to location, location, location! It boils down to the desirability of the area as much as the property itself.

Appraisers will look to other properties in the same neighborhood, or the surrounding area to help assess the market value of the property that needs financing. By assessing other similar properties in the same location, appraisers can have more information to go on when determining market value for the property. Of course, there will always be differences between properties that will affect the market value of an individual property. 

Maybe the house in question was built the same year as the one right next door. It might even have the same floor plan and square footage. This provides the fundamentals for a solid comparable to help assess the overall market value. However, what if there are significant upgrades to the comparable that increases the overall selling price? Renovations will increase value upward and will affect how the appraisers will be assessing the market value of the property in question. Is there a pool in the backyard? Significant landscaping improvements? 

What Is An Appraisal- Are There Different Types of Appraisals?

Of the many things on your to-do list when looking to secure second mortgage financing is setting up an appraisal on your property. Rest assured; your lender will be relying heavily on this document when deciding on the final terms of your second mortgage option. The appraisal will ultimately play a very central role in determining the overall amount of your mortgage loan (in addition to the Loan-to-Value calculated.)

It can not be stressed enough that you need to bring a recent appraisal of your property to any meeting with a lender. All Ontario-based lenders including the big banks, trust companies/credit unions, and any private lending option will be assessing this appraisal very carefully.

An appraisal can be viewed as an overall assessment of the state of your property. It is the overall process of forming an opinion of the relative value of a property. It is because every property is a unique entity that an appraisal is highly necessary. Lenders will need to approach every property differently based on its unique advantages and disadvantages. 

The appraisal is essentially the piece of paper that can summarize these individual specifications of a given property. A prospective lender will rely on the findings of an appraiser. The lender will take into consideration the pros and cons of the property in question when structuring second mortgage financing. He/she will be asking themselves key questions:

  • What is the current state of the property? 
  • Is there a need for any major renovations?
  • How do the upgrades compare to similar properties in the neighborhood?
  • What is the resale value of similar properties in the area?

There are two types of appraisal reports: The Form Reports and the Narrative Reports

Concerning the Form Report, the appraiser will fill out a form that is a general template to be filled. All necessary information is provided within this document. 

Conversely, in the Narrative Report, the information that the appraiser will provide is in written form, rather than inputted on a standard form. Any reasons or rationale behind the appraiser’s decisions will be clearly written.

Most Private lenders will be relying on a form report. Generally, this report type is utilized with smaller residential properties or small rental properties with no more than four units. 

Targeting the Appraisal- How to Find a Reputable Appraiser?

Just how will you choose a reputable appraiser? Just as in the case of any job that you require professional services for, be it movers for a long haul move or a plumber to fix your sink, make sure that the appraiser you choose is affiliated with a reputable association. A mortgage broker can recommend appraisers that they feel confident about.

Beyond any recommendation, it is important to know that a reputable appraiser will belong to The Appraisal Institute of Canada (AIC) which is the professional association of Canadian real estate appraisal professionals. The association currently has over five thousand members across the country.

Each Province has an affiliated professional Provincial association representing recognized and proven appraisers for that particular Province. Ontario belongs to the AIC-Ontariochapter of the Appraisal Institute of Canada. Professional appraisers must meet the minimum professional standards set out by the AIC to be considered competent in performing the job for you.

What Does an Appraiser Look for In An Appraisal?

A lender will be looking for in-depth and unbiased opinions about the property in question. During the appraisal process, private lenders are in the same position as other mortgage professionals and are seeking the same key information from the appraisals. What you should be looking for is an accurate and unbiased assessment of the property that you are securing a loan against, with your borrower.

Some other variables might have an impact on the final appraised value of the property. We touched on some of these previously. They would generally include:

  1.  The year the property was built (is it a new build?)
  2.  Any upgrades and any renovations that may affect the final appraised value
  3. Any structural problems that are in immediate need of attention
  1. Any ongoing issues such as water damage or mold
  2. Comparables in the surrounding area for appraisal estimates

Need Help Refinancing?

Regardless of the motivation to refinance using existing home equity, an appraisal will be a key determinant. The appraised value will affect both the second mortgage terms and the final loan amount. At Mortgage Broker Store we can help with any concerns you may have over the home appraisal process.  If credit is an issue, or a high debt ratio may be serving to be a barrier to your refinancing goals, we will be able to negotiate the terms of a private second mortgage. With a network of well-established private lenders throughout Ontario, we will also be able to direct you to other private lending options to help achieve your financial objectives.

About Jonathan Alphonso

Mortgage Agent, Web Developer, and Real Estate Investor. Together with Ronald Alphonso I run MortgageBrokerStore.com. I write about a variety of topics on Canadian mortgages and real estate. Our particular specialty is dealing with Ontario power of sale and foreclosure situations.