A CONSUMER S GUIDE To Undersanding he Residenial Appraisal Process VA LU AT I O N S A P P R A I S A L R E V I E W CO N S U LT I N G F E A S I B I L I T Y S T U D I E S D U E D I L I G E N C E ADVANCE FIER DE L AVANCEMENT PROFESSION PROFESSION PROUD TO THE APPRAISAL DE NOTRE www.icecanada.ca
A CONSUMER S GUIDE Conens The Appraisal Process Hiring an AIC Designaed Appraiser Key Things o Consider Wha o Expec During a Propery Inspecion Who s Involved in Financing or Refinancing Your Propery Who is he Appraiser s Clien Renovaing Your Home Frequenly Asked Quesions Abou he Appraisal Insiue of Canada 3 3 5 6 6 7 9
Abou his guide The Appraisal Insiue of Canada (AIC) has developed his guide o provide you he consumer wih advice and guidance on how o effecively hire a professional appraiser o complee a marke value assessmen of your propery. Propery owners can save ime, expenses and hearache by firs consuling wih a designaed member (AACI or CRA) o conduc a comprehensive valuaion of heir propery. An AIC designaed appraiser can provide an independen and unbiased assessmen of he value of a home prior o buying, renovaing or refinancing. Visi he AIC websie a o find a qualified appraiser in your area.
A CONSUMER S GUIDE UNDERSTANDING THE RESIDENTIAL APPRAISAL PROCESS AIC members are engaged by a wide range of cliens o provide a professional opinion or consuling services on he qualiy, value, or uiliy of a specific propery. Appraisals may be required for any ype of propery - single family homes, small and large renal properies, condominiums (ownhomes or aparmens), office buildings, shopping cenre, hoels, indusrial sies, farms, o name a few - whenever real esae is sold, morgaged, assessed, insured, or developed. This Guide focuses on residenial appraisals for morgage lending purposes - one of he primary reasons an appraisal is requesed. Appraisals are frequenly required o confirm he marke value of he propery and he equiy when: propery; THE APPRAISAL PROCESS One of he key mehods in valuing a residenial propery involves comparing properies ha have recenly sold wihin he neighbouring area and ha offer similar characerisics o he propery being valued. For morgage financing purposes a residenial propery can be a single family dwelling, duplex (2 unis), riplex (3 unis), fourplex (4 unis) or an undeveloped residenial dwelling sie. valued since he objecive of he appraisal is o esimae he price ha he subjec propery would mos likely sell for if exposed o he markeplace, recen sales of similar properies are used for comparison and as benchmarks. Comparable sales represen wha oher informed buyers in he markeplace are willing o pay for similar feaures, locaion and ameniies. propery since no wo properies are exacly alike, he appraiser gahers informaion on he comparable sales and applies adjusmens o he acual sale price of hese sales o reflec heir differences (locaion, characerisics and ameniies) vis-à-vis he subjec propery. The adjused sale price of each comparable sale hen provides a reasonable range of value o guide he appraiser in esimaing a marke value for he subjec propery. HIRING AN AIC DESIGNATED APPRAISER KEY THINGS TO CONSIDER By hiring an AIC designaed appraiser: you reain a qualified professional who has successfully compleed he AIC s rigorous educaion, field experience and examinaion requiremens ha each AIC designaion demands; you engage a professional who adheres o he AIC s Code of Ehics and Canadian Sandards of Professional Appraisal Pracice; and you will receive an independen and unbiased opinion of value suppored by comprehensive marke research and analyses. TIPS TO HIRING THE RIGHT APPRAISER 1. Ask an appraiser for heir professional designaion. Be sure i is from a srong professional associaion such as he Appraisal Insiue of Canada. Go o AICanada.ca o Find an Appraiser. 2. Ask a professional appraiser if hey have significan experience in he ype of valuaion services you need. 3. Don be afraid o ask for references! 3
The Terms of Reference of he appraisal assignmen should be in wriing and agreed o by he paries prior o he assignmen o avoid any misundersanding or addiional work o amend he valuaion repor. The ypical erms and condiions ha should be aken ino consideraion when hiring a designaed appraiser include he following: Purpose of he Appraisal Assignmen: Oulines ha he purpose of he appraisal is o esablish a marke value, and herefore should include he relevan definiion of value. Inended Use of he Appraisal Repor: Idenifies wha you inend o use he valuaion repor for (e.g. morgage financing, refinancing). This allows he designaed appraiser o confirm he work ha will be required and provide any specialized advice necessary o suppor your inended use. Inended User(s) of he Appraisal Repor: Defines o whom he designaed member can expec o provide a copy of he repor. Appraiser s Clien: The Clien is no necessarily he one who pays for he repor bu raher he one ordering he appraisal repor. Anyone wishing o obain a copy of he appraisal repor mus conac he appraiser s clien. The appraiser can provide a copy of he repor o a homeowner or a hird pary provided ha he appraiser obains his or her clien s permission in wriing. o o o Form repors are ypical in residenial valuaions. Shor narraive repors se ou he key salien facs and conclusions. Full narraive repors se ou in greaer deail he research and conclusions. Effecive Dae of he Appraisal Repor: This can be he dae of inspecion or any oher reasonable dae in he circumsances. The dae can be curren, pas ( rerospecive ) or fuure ( prospecive ). Assumpions Made in he Analysis and Limiing Condiions ha may Impac he Value: Assumpions and Limiing Condiions should be discussed in advance and confirmed in wriing by he appraiser as being appropriae for he valuaion. Appraisal Fee: An agreemen on he fee charged for compleing he appraisal assignmen and idenificaion of he pary responsible for making he paymen should be negoiaed prior o saring he appraisal assignmen. As menioned above, he fee depends on he complexiy of he appraisal assignmen. Conflic of Ineres: The appraiser mus disclose any conflic prior o aking on an assignmen or as soon as uncovered once he appraisal assignmen has sared. Depending on he naure of he conflic, he appraiser may need o decline an appraisal assignmen. Due Dae: This is he dae ha he final valuaion repor is expeced o be delivered. Appraiser s Cerificaion: This is he designaed member s cusomary and usual cerificaion a he end of an appraisal repor which is he appraiser s accepance of responsibiliy for he appraisal and he conens of he appraisal repor. Type of Appraisal Repor: The ype of propery being appraised and he complexiy of he appraisal assignmen will ypically deermine he ype of repor ha will be required as well as he corresponding appraisal fee. 4
A CONSUMER S GUIDE WHAT TO EXPECT DURING A PROPERTY INSPECTION BE AWARE! An inspecion is jus one of he many asks performed by an appraiser. Appraisers mus be familiar wih he propery inspecion process, and observe he componens and characerisics of he subjec propery ha will influence value in he markeplace.1 The appraiser s inspecion akes ino accoun a number of elemens including: Consumers mus be mindful ha under he Personal Informaion Proecion and Elecronic Documen Ac (PIPEDA), he appraiser mus obain he homeowner s or occupan s consen (if differen han homeowner) eiher in wriing or verbally, prior o aking inerior phoographs. HBUIFS JOGPSNBUJPO BCPVU SFDFOU NBSLFUJOH BDUJWJUZ PO your home. While public informaion is ofen available, he appraiser may inquire abou any lisings of he propery (including privae lisings) or offers o purchase in he pas welve monhs, as well as any sales of he propery for he previous hree years. he physical characerisics of he dwelling and any oubuilding; inerior/exerior finishes and sysems (e.g. heaing and cooling); he qualiy of he improvemens; and, any deficiencies or required repairs. In addiion o undersanding he dynamics of he real esae marke, designaed appraisers also have consrucion skills and knowledge, which are fundamenal o heir raining. Members also rely on he experise of indusry professionals where building characerisics are more complex. Consumers ofen wan a preliminary esimae of value before he appraiser leaves he propery. I is imporan for consumers o be aware ha mos of he valuaion process occurs afer he inspecion. The inspecion allows he appraiser o gaher sufficien informaion o properly describe he propery. Wheher i is he consumer or he lending insiuion ha engages an appraiser o value your home, he appraiser will: Esimaing he marke value requires he appraiser o complee a horough analysis of marke condiions and marke aciviy. I is ofen a complex process ha involves collecing and analyzing beween 3 and 10 (or more) comparable properies in order o form a reliable esimae of marke value. se a convenien ime for an inspecion; plan for 20-40 minues or more for he inspecion depending on he size and characerisics of he propery; As a consumer, his is wha you are paying for: an independen and unbiased opinion of value by a qualified appraisal professional. collec as much informaion as possible during he inspecion of he home on he inerior and exerior of he propery (e.g. room layou, improvemens, dwelling measuremens, informaion on any oubuildings or garage, sie improvemens, ec.); ake phoographs o provide a visual represenaion of he daa described in he repor. Exerior phoographs are imporan o clearly idenify he propery and is characerisics. Someimes, inerior phoographs are requesed by he appraiser s clien. 1 Source: The Appraisal of Real Esae, Third Canadian Ediion, 2010, p. 11.2 ask you abou imporan feaures of your propery such as he original dae of consrucion, daes of any major addiions or renovaions, and exra feaures, o name a few; 5
IMPORTANT: Consumers should ask heir lending insiuion if an acual appraisal has or will be conduced and wha he appraisal fee will be. Federally-regulaed financial insiuions mus provide key informaion in or wih your morgage agreemen, including fees paid 4 (e.g. appraisal fee) as par of he morgage loan process. WHO S INVOLVED IN FINANCING OR REFINANCING YOUR PROPERTY Wheher buying or refinancing a home, i is imporan for you he consumer o undersand where he appraisal repor falls wihin he overall morgage loan process. There are many paries involved and each plays a criical role wihin he ransacion. WHO IS THE APPRAISER S CLIENT Realor or seller if buying a home Lawyer if buying or if refinancing involves regisering an addiional morgage Appraisers work on a confidenial basis wih heir cliens (known as clien-appraiser relaionship), in he same fashion as oher professionals such as lawyers and accounans. When a morgage broker or lender requess an appraisal, hey are he appraiser s clien, regardless of who pays he appraisal fee. Under he AIC s Sandards of Professional Appraisal Pracice, any discussions on or disclosure of informaion conained in an appraisal repor mus be done wih he wrien consen of he appraiser s clien. Insiuions ha are regulaed by he federal governmen (e.g. Royal Bank of Canada, CIBC, Scoiabank, Bank of Monreal, TD Bank), rus companies, foreign banks, loan companies, insurance companies, o name a few)2 if buying or refinancing Lending insiuions who are non-federally regulaed (e.g. morgage brokers, credi unions) if buying or refinancing Appraisal Managemen Companies (AMCs) if buying or refinancing When a lending insiuion requires an appraisal repor on a propery, more commonly, hey will engage an Appraisal Managemen Company (AMC) o ac as an inermediary o faciliae he appraisal process on heir behalf. AMCs offer heir cliens a single poin of conac for he managemen of he appraisal funcion and have a conracual relaionship wih boh heir lender cliens and he local appraisal praciioner. Propery inspecor3 if buying a home Appraiser if buying or refinancing Tradiionally, he appraisers had a direc relaionship wih lenders, brokers and morgage insurers. Since he mid-1990s, he lending indusry has placed an increased reliance on compuer-generaed morgage approval processes. Under cerain condiions, obaining an on-sie appraisal of he propery process is by-passed alogeher and a morgage applicaion may no necessarily involve an acual appraisal of or an on-sie visi o he propery by a qualified and designaed appraiser. While here are a number of layers o he appraisal process, appraisers, AMCs and lending insiuions are focused on making he process as seamless as possible o he consumer. 2 Office of he Superinenden of Financial Insiuions (OSFI): www.osfi-bsif.gc.ca/wwwapps/liss/eng.asp 3 Professional propery inspecors are specialized conracors wih experise in uncovering defecs in he srucure and maerials of various ypes of properies. Source: The Appraisal of Real Esae, Third Canadian Ediion, 2010, p. 11.2 4 Financial Consumer Agency of Canada (FCAC): www.fcac-acfc.gc.ca/eng/consumers/righs/morgage/applyingmorgage-eng.asp 6
A CONSUMER S GUIDE RENOVATING YOUR HOME FREQUENTLY ASKED QUESTIONS As expers in real esae valuaion, appraisers have he knowledge and he experise o advise homeowners, buyers and sellers on he conribuory value of proposed renovaions. There are differen reasons for waning o renovae. I may be a lifesyle choice, a change in family circumsances and he need for more pracical renovaions, or quie simply he desire for a change. Regardless, planning a renovaion is key o proecing your invesmen. Q: A: Q: A: Q: A: THE VALUE IN ENERGY EFFICIENCY In a cross-canada survey by he AIC, our members raed energy efficiency improvemens as one of he highes paybacks relaive o cos ha a homeowner migh receive on home renovaions. Wha are some of he bes ways o improve he value of your home? Upgraded or renovaed kichens and bahrooms, as well as flooring upgrades, windows and doors can provide grea appeal; however; i is imporan no o under-improve or over-improve a home. Homeowners mus be mindful of he expecaions of purchasers in heir marke. Wha are some of he small renovaions mos recommended o homeowners waning o sell heir home? Paining goes a long way o adding freshness and redefining he syle of a home. Trim, inerior doors (including resurfaced kichen cabines), door handles, bahroom fixures, lighing fixures don necessarily require large invesmens bu can easily modernize a home. How much money should people expec o receive on heir renovaion invesmen when hey sell heir home? The reurn on invesmen depends on he conribuory value, or value add, of he renovaion and ends o vary from marke o marke. The conribuion o value is deermined by he acions of buyers and sellers which is somehing ha mus be analyzed and esimaed in he local marke. For example, invesing $30,000 renovaing a kichen may be an over-improvemen for a home in a paricular marke, which means ha he reurn on he renovaion invesmen would likely be parially recognized by homebuyers. 7
Q: A: Nowadays, homebuyers are more and more aware of he financial and healh benefis of an energy efficien home. Again, he conribuory value of such improvemen is influenced by local markes and more recenly, as a resul of federal and provincial financial incenives offered o homeowners. Wha are homebuyers drawn o when considering a purchase? Firs and foremos he locaion of he home in relaion o he workplace, schools, relaives, friends, public ransi; convenience and accessibiliy o shopping cenres, resaurans, recreaion cenres; suiabiliy o he homebuyers lifesyle (e.g. rural, urban, waerfron); and he immediae and surrounding neighbourhoods. Depending on how long a homebuyer is planning on owning he propery, he anicipaed resale value of he home can also be a grea consideraion. Oher key feaures include he physical characerisics of he home such as design, syle, size, qualiy of he finishes and workmanship, poenial for expansion and landscaping. 8
A CONSUMER S GUIDE ABOUT THE APPRAISAL INSTITUTE OF CANADA EDUCATION AND ACCREDITATION AIC grans he disinguished Accredied Appraiser Canadian Insiue - AACI and Canadian Residenial Appraiser CRA designaions o individuals across Canada and around he world. Founded in 1938, he Appraisal Insiue of Canada (AIC) is he premier real propery valuaion associaion in Canada. The AIC is a self-regulaing professional organizaion wih over 4800 members across he counry. An AACI designaed member may underake any real propery assignmen where hey have demonsraed compeence wih he real propery ype and he geographic and marke influences ha impac value. Propery ypes can include bu are no limied o: residenial, commercial, indusrial, insiuional, agriculural, land, or special use. A CRA designaed member may underake a residenial real propery assignmen where hey have demonsraed compeence wih he residenial propery ype and he geographic and marke influences ha impac value on residenial dwellings conaining no more han four selfconained family housing unis or an individual undeveloped residenial dwelling sie. These designaions recognize highly qualified individuals who have compleed he AIC s rigorous curriculum, experience and examinaion requiremens. 9
STANDARDS OF PROFESSIONAL APPRAISAL PRACTICE An appraiser s professional and ehical responsibiliy is o provide an independen and unbiased assessmen of he value of he subjec propery. As a self regulaing body, he AIC has esablished ehics and sandards o help ensure members fulfill heir obligaions o heir cliens and o ensure hey mainain heir skills. In addiion o he requiremen o comply o he AIC s Sandards, commonly known as Canadian Uniform Sandards of Professional Appraisal Pracice (CUSPAP), in some provinces, AIC members mus also adhere o heir respecive provincial licensing requiremens (e.g. Albera, Nova Scoia and New Brunswick). ADDRESSING YOUR CONCERNS AIC has a complain resoluion process (CRP) ha is focused on mainaining he excellence of he appraisal profession and he services provided by is members o he public. The CRP does no arbirae or deermine he marke value bu raher focuses on adherence o he Appraisal and Ehic Sandards se ou in he Insiue s Sandards. A complain mus be iniiaed in wriing by compleing he Complain Form, locaed on our websie (AICanada.ca) and emailed o direcorprofessionalpracice@ aicanada.ca. This Guide has been auhored by Allan Beay (AACI, P.App) and Nahalie Roy-Paenaude (AACI, P.App). A designaed appraiser mus also abide by he AIC s Code of Professional Conduc and Professional Ehics in underaking any appraisal assignmen according o he Canadian Uniform Sandards of Professional Appraisal (CUSPAP) and be regisered in he AIC s mandaory professional liabiliy insurance program. 10
Appraisal Insiue of Canada Briish Columbia The Appraisal Insiue of Canada Briish Columbia (AIC BC) is a provincial associaion of he Appraisal Insiue of Canada (AIC) wihin Briish Columbia and he Yukon. AIC-BC represen approximaely 1000 members and delivers AIC s member programs and services wihin he region. AIC-BC s objecive is o implemen policies and programs o advance he profession and proec he public. APPRAISAL INSTITUTE OF CANADA Briish Columbia 210 10451 Shellbridge Way Richmond, Briish Columbia V6X 2W8 Tel: (604) 284-5515 Fax: (604) 284-5514 www.appraisal.bc.ca Conac AIC-BC a info@appraisal.bc.ca www.icecanada.ca