Selling your house; for what it’s worth.

arms-lengthThe Appraisal Institute of Canada released a document encouraging Canadian homeowners to do their own due diligence and have their house appraised before putting it on the market.

You can read the entire document here: Homeowners encouraged to do their own due diligence when selling their home

If you have sold your home before, you understand the importance of getting the listed price right! A qualified, independent, accredited appraiser can help you do that. Both seller and prospective buyers will be more confident in the listed price, and it sets the table for an honest negotiation. It should also lead to a timely sale.

Another good reason to hire an appraiser has to do with the bank’s policy on “market value”. Whoever buys your home, assuming they will need a mortgage, has to satisfy the bank’s criteria for market value. Understand, banks lend money against a property’s market value. What is the bank’s criteria for establishing market value? Simply put, it’s the lessor of purchase price or appraised value.

In an arms-length purchase transaction, where the property was listed on the open market, determining market value can be an easier exercise. Typically, the appraised value will match the purchase price. However, as we have seen many times in markets like Toronto and Vancouver, buyers can pay well over the listed price. When that happens, there is a risk the appraised value will be less than the purchase price. This can potentially increase the buyer’s down payment necessary to obtain financing. For example, listed property for $450,000 sells for $480,000. Maximum financing from the bank will be 95% of appraised value, NOT, purchase price. The buyer will need to come up with the difference. The aforementioned risk is directly related to the amount paid over the listed price, assuming the property wasn’t listed below market value. It’s not exact science, but you get the idea.

Therefore, any effort to establishing the property’s market value in advance can be beneficial to both sellers, who want a timely sale with no surprises, and prospective buyers who can more readily determine their financing requirements.

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