When it comes to appraisals, there are many misconceptions. Let’s reveal the truth in some of the more common myths.
Myth: The professional appraisal is the same as a Realtors opinion of value.
Fact: A professional appraisal is more than just an opinion. It has value for many things including financing. It is a legally binding document that can stand up in court. The opinion of the Appraiser is considered to be a professional opinion; not one that could be biased by a potential commission.
Myth: Appraisers use a formula, such as a specific price per square foot, to figure out the value of a home.
Fact: False. Appraisers make a detailed analysis of all factors pertaining to the value of a home including, but not limited to: its location, condition, size, proximity to urban centers, major transportation channels and functioning railroad tracks. For waterfront sites, the list becomes more extensive as there are a multiple of contributing factors to take into consideration including, but not limited to; proximity to urban centers and major transportation channel, distance from Toronto, the ruggedness of the terrain, views, topography, exposure, access, size, shape and utility of the water-body and land, shoreline access and the depth at the water’s edge.
Myth: Market value should approximate replacement cost.
Fact: Cost does not equal value. Market value is based on what a willing buyer would likely pay a willing seller for a particular property, with neither being under pressure to buy or sell. Replacement cost is the dollar amount required to reconstruct a property in-kind and does not take into consideration land value.
Myth: You generally can tell what a property is worth simply by looking at the outside.
Fact: As previously mentioned, property value is determined by a number of factors, including other factors such as location, condition, improvements, amenities, and market trends. You literally cannot judge a book by its cover.
Myth: Because consumers pay for appraisals when applying for loans to purchase or refinance real estate, they own their appraisal.
Fact: The appraisal is in fact, legally owned by the lender – unless the lender “releases its interest” in the document. However, consumers may be given a copy of the appraisal report. This will depend upon the lender releasing their interest, the request must be written and release is at the discretion of the appraiser.
Myth: An Appraisal is the same as a home inspection.
Fact: An Appraisal does not serve the same purpose as an inspection. The Appraiser forms an opinion of value in the Appraisal process and resulting report. A home inspector determines the condition of the home and its major components and reports these findings.