Consumers are often baffled by the home appraisal process. They may feel their home is worth a certain dollar amount, and therefore, the appraised value doesn’t make sense to them. It is important to know that appraisal guidelines are dictated by the lenders.

In many provinces, the lenders must disclose the purpose of the appraisal, as each situation carries its own set of rules. In essence, lender guidelines force appraisers to put a fair market value on a home based upon comparable sales in the area where the home is located, as the home must be bracketed according to size and value.

For example:

There is no set amount associated with a great view, pool, spa, bathroom upgrades, etc. If a homeowner installs a custom pool that cost them $30,000, and the local marketplace supports the value of a pool at $15,000, that item will be bracketed as [$15,000] on the appraisal.

Upgrades can usually be expressed at full value in newer homes since they required investing additional money onto the cost of building the home. On the other hand, the amount invested in upgrading or remodelling an older home is rarely reflected in full in the final appraisal.
The reason is the home had value in its original condition, and again, the value of the upgrades must be supported by comparable examples within the same marketplace. [Read more...]