What is an appraisal?  

In the Canadian Uniform Standards of Professional Appraisal Practice (CUSPAP), the Appraisal Institute of Canada defines an appraisal as: "A formal opinion of value expressed either in written or oral form that is prepared as a result of a retainer or an agreement and is intended to be relied upon by identified parties; and for which the Member assumes responsibility."
 

What is market value?

In the Canadian Uniform Standards of Professional Appraisal Practice (CUSPAP) the Appraisal Institute of Canada defines market value as: “The most probable price, as of a specified date, in cash, or in terms equivalent to cash, or in other precisely revealed terms, for which the specified property rights should sell after reasonable exposure in a competitive market under all conditions requisite to a fair sale, with the buyer and the seller each acting prudently, knowledgeably, and for self-interest, and assuming that neither is under undue duress.”

 

How does an appraiser estimate value?

An appraiser provides a formal, unbiased opinion of market value as of the date of the appraisal inspection. Market value estimates can also be completed for retrospective or prospective assignments. There are many factors which can have an impact on the market value of a property including, but not limited to: location, lot size, liveable floor area, condition, zoning provisions, and the highest and best use of the property. There are three main approaches to value which are used in determining the market value of a property which include the Direct Comparison Approach, the Cost Approach, and the Income Approach. 

 

After a detailed description of the subject property, neighbourhood, and subject site, including zoning provisions and a highest and best use analysis, the appraiser will complete a Direct Comparison Approach to value. In the Direct Comparison Approach, the appraiser will look at sales and listings of similar properties in the neighbourhood, make adjustments to those sales to make them comparable to the property, and then reconcile the adjusted sale prices of the comparables into an estimate of market value for the property. 

 

The appraiser will also complete a Cost Approach to value in which the appraiser uses a cost manual to determine the reconstruction cost of the home. If the home is not new, the appraiser will calculate and apply depreciation to the reconstruction cost figure to reflect the current condition of the home. Once depreciation has been applied, the appraiser will add on the contributory value of any site improvements (decks, porches, patios, pools etc.). Finally, the appraiser will research vacant land values in the subject's area to determine a vacant land value estimate for the property. The land value is then added to the depreciated reconstruction cost of the home and the contributory value of the site improvements to determine a market value estimate for the property. Please note the cost approach to value is not applicable in the appraisal of a condominium unit.

 

If your property is an income producing property* and there is income and expense data available, the Income Approach to value can also be used to estimate the current market value of the property. In this approach to value, the appraiser will develop a capitalization rate for the property and will capitalize the current net income producing capabilities of the property into a current value estimate for the property. 

 

The above approaches to value are then reconciled into a final market value estimate for the property. The final reconciliation of market value is reflective of the property being appraised and is based on the most relevant, accurate and reliable data available at the effective date of appraisal.

 

*Please note that KLM Appraisals only completes appraisals on multi-family dwellings up to four units.
 

What should I expect during an appraisal inspection?

KLM Appraisals offers full, in-person appraisal services where our professional appraisers are directly on site to view your property. The typical viewing of your property will take anywhere from 30 minutes to upwards of an hour depending on the property type and size. The appraiser will begin by asking you questions about your property. The appraiser will then start in the basement/utility room and will work upwards from there. The appraiser will view each room in the home and will take notes in regards to the condition and finishes throughout the home. With your express permission, the appraiser will take pictures of each room for their appraisal report. After the entire home has been viewed, the appraiser moves outside where they will view any ancillary buildings, take notes about your site improvements, the exterior of the home and any surrounding positive or negative aspects impacting on the marketability of the property. Finally, the appraiser will take exterior measurements of the home and any ancillary buildings on site. 
 

What can I do to prepare for an appraisal?

The best way to prepare for an appraisal is to ensure that all rooms are accessible and that there are clear paths to the furnace, electrical panel and water heater. It would be helpful, but is not necessary, for the homeowner to have a list of updates completed within the last five years for the appraiser's reference. If you have a recent Tax Bill or MPAC Assessment Notice the appraiser can obtain some information about your property from these documents. KLM Appraisals team members love pets, but if your pet is over-enthusiastic or does not do well with visitors, please ensure you have a plan in place for when the appraiser is on site. If you are planning to do renovations and need to have an appraisal completed for the financing of the renovations, the best practice from the appraisal perspective is to hold off on the demolition portion of the renovation process until after the appraiser has been on site and has submitted the report.

How much does an appraisal cost?

There are many different variables which may have an impact on the cost of an appraisal including, but not limited to: the intended use of the appraisal, the location of the property, whether the property is in an urban location or a rural location with acreage, whether the value contained in the report is current, retrospective, or prospective and/or the type of property itself (e.g. vacant land, single detached dwelling, multi-family dwellings). For a quote please contact us at requests@klmappraisals.com or 519-293-0055. Alternatively, you can fill out our online Request a Quote form and we can email you with a quote for our services.

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Will I receive a copy of the appraisal report completed on my home?

At KLM Appraisals Inc., we do not release copies of appraisal reports to homeowners (regardless of who paid for the appraisal) unless the report was ordered by and completed directly for the homeowner. As per the standards and practices set out by the Appraisal Institute of Canada, we are only permitted to forward a copy of the appraisal to our client. Each appraisal report is completed for an authorized client/user (e.g., lender, financial institution or mortgage broker) and for a specific authorized use (e.g., first mortgage financing, equity take out). This protocol ensures that the privacy of all parties involved is protected and helps to protect against potential misuse of the report, such as mortgage fraud.

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The Appraisal Institute of Canada’s standards and practices, as set out in CUSPAP, are designed to mitigate risk for both appraisers and their clients. Every additional copy of an appraisal report that is released comes with additional risk for the appraiser and the lender as it increases the likelihood that fraud could occur. For example, if an appraisal report is compromised and altered, it could potentially be used fraudulently to secure financing. This presents a significant risk for all parties involved. Furthermore, there have been cases where homeowners have used appraisal reports for unintended purposes which could expose our firm to potential legal liability. Please note that this policy applies to all appraisers holding the CRA or AACI designation from the Appraisal Institute of Canada.

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If you order an appraisal directly through KLM Appraisals (and it is not ordered by or to be sent directly to a lender/financial institution/mortgage broker) and the appraisal is to be relied upon by a lender/financial institution, you will receive a copy of the appraisal. In this instance a Letter of Reliance will be required which authorizes the lender/financial institution to rely on the appraisal as they are not listed in the appraisal as the intended user. There is an additional cost for a Letter of Reliance in addition to the appraisal cost.

 

If you are ordering the appraisal yourself and are submitting it to your lender/financial institution, it’s imperative that the appraiser you hire is on your lender’s Approved Appraisers List. This is one of the reasons why it is not as common for homeowners to order appraisals on their own behalf as many times a second appraisal must be ordered by the lender/financial institution so that the appraisal is completed by an appraiser on the lender's Approved Appraisers List. This can often lead to delays and additional appraisal costs for the homeowner. Additionally, each lender will have their own policies which will dictate if they are able to rely on a report. For example, some institutions may have a policy in relation to the effective date of the appraisal (e.g., if an appraisal was completed more than 3 months in the past, the lender may require a new, more recent appraisal to be ordered which would be reflective of current market conditions).  We recommend contacting your lender/financial institution directly to confirm their specific requirements as some institutions may only accept appraisals ordered through an Appraisal Management Company (AMC) and may not accept an appraisal which was commissioned outside of the AMC.

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What is the difference between an opinion of value from a real estate agent and an appraisal?

An opinion of value is a short-form document used to estimate an appropriate sale price for a property should it be listed on the open market by a real estate agent. An opinion of value is not typically recognized by Canada’s lending institutions. An appraisal is an objective, third-party, estimate of the fair market value of a property. Appraisals are more detailed than a letter of opinion and are commonly used by Canada’s lending institutions to mitigate risk in their lending practices. Appraisal Reports prepared by Appraisal Institute of Canada members are regulated by the Canadian Uniform Standards of Professional Appraisal Practice (CUSPAP) and are subject to the strict guidelines in regards to the data and detail included in the appraisal report, as well as the conduct of the appraiser.

Will an appraisal have an impact on my property’s assessed value for property tax purposes?

The results of an appraisal report are only shared with the client and are not sent to the Municipal Property Assessment Corporation (MPAC) for reconsideration of assessment. MPAC applies an in-house process which involves the home-owner for the reconsideration of an assessed value for taxation purposes. The home-owner is responsible for gathering evidence to support a change in assessed value and this may include an appraisal, however, unless the appraisal report is specifically completed for assessment reconsideration purposes for MPAC, the appraiser will not provide any information to MPAC about the contents of the report.

Can’t find the answer to your question?

Please contact our team at requests@klmappraisals.com.