Why Do Bank Appraisals Matter

Bank appraisals are often the last thing on your mind when buying or selling a home. You’re more focused on the big picture and what you want from your transition. When selling, you strive to do whatever you can to get the maximum value from your existing home.

When buying, you want to negotiate to try to get the best possible terms you can in the current market. However, both buyers and sellers need to know how bank appraisals factor in so you can experience a successful transaction without last-minute headaches.

What Is Your Home Worth?

For a successful sale, few things matter more than an accurate price based on recent buyer activity. But how do you know how much your house is worth in an uncertain market? To find out, many homeowners turn to a free evaluation from a real estate agent. They will pull multiple reports from various boards to find the latest statistics in your neighbourhood.

In addition, a good real estate agent will perform an up-to-date CMA (Comparative Market Analysis) to factor in the size of the house, the location, and the number of bedrooms and bathrooms while seeing how much similar homes are currently selling for.

A bank appraisal is similar, except a certified appraiser, not a real estate agent, performs the evaluation. An appraisal also focuses more on the physical features of the home rather than the latest market activity. Unlike a home evaluation or CMA, there is typically a nominal cost to order a bank appraisal.

Looking for more tips to maximize your sale in the West End? The resources below will help:

Most real estate professionals advise anyone planning to buy a home to get a pre-approval first as this gives a close estimate of how much you can borrow. It’s not surprising that the total amount depends on the buyer’s income, net worth, and debt load. However, the bank appraisal is also critical as the lender uses it to determine the final amount they will authorize.

Ultimately, a house is worth what a qualified buyer can and will pay for it. However, problems can arise when the results of the home evaluation and bank appraisal are vastly different. How can this ever happen?

While an experienced real estate agent and certified appraiser should come up with similar amounts, there can be discrepancies depending on the market. During balanced and buyer’s markets, the results are most likely to reflect what is called fair market value. However, all bets are off when conditions lean in favour of sellers.

For example, based on physical features, an appraiser might estimate the value of your house at $800,000. However, if it’s a hot market, fierce competition from multiple buyers can drive the prices up. In this case, the real estate agent might say that the value is closer to $850,000.

During Toronto’s pandemic market, it wasn’t uncommon for the final price to be even more than the agent or the appraiser anticipated. Some listings sold within days for hundreds of thousands of dollars over the asking price. Still, there can be serious implications for both buyers and sellers when offers come in that are far above the appraised amount.

What Sellers Need to Be Aware Of

Imagine listing your home in a busy market and multiple offers start coming in within days. Since buyers are competing with each other, they start offering higher and higher amounts in an attempt to win the house. You may feel ecstatic at receiving an offer for a full $100,000 higher than your original asking price. Could there be a catch?

There certainly can be a problem if the selling price is well above the appraisal amount because the bank will not lend your buyer more than the fair market value. Unless they can come up with those funds out of pocket or find an alternate lender, your transaction could fall through. This last-minute catastrophe is highly inconvenient and can also put you in a tough spot if you have already agreed to purchase a new home after yours sells!

Receiving multiple offers is always a good sign, but it’s critical to work with an experienced real estate agent who can vet potential buyers and ensure they are willing and able to follow through.

Is there a change on the horizon for you? The resources below can help guide you to your next home:

How Bank Appraisals Affect Buyers

Buyers especially need to be aware of how bank appraisals can impact your transaction. When Toronto is in a buyer’s or balanced market, it’s well worth asking for an appraisal to ensure you don’t pay more than fair market value for your new home. This is important since the market can change so quickly. Many homeowners will still try to sell their properties based on old information when conditions were more in their favour.

As a buyer, an accurate appraisal is even more critical during competitive periods and bidding wars. Remember that if you fall in love with a home and bid over the appraised value, it’s likely that your lender won’t approve the full amount.

For example, imagine you have your eye on a house appraised at $800,000. Even if you’re qualified at a higher amount, the bank will base your loan on that fair market value. If you get enthusiastic and offer $850,000, you’re on your own for that additional $50,000.

You need to proceed with caution when relying on financing to purchase your new home. If you get in over your head and have to back out, you’ll likely lose your deposit and may even face legal action from the seller.

Placing an offer with the condition of financing can protect you from this scenario. In addition, if you do have access to additional funds, you may decide the house you love is worth it, especially when you plan to stay for the long term.

Knowing the current market and working with a real estate agent specializing in your area can protect your interests and ensure you get the best outcome no matter what the market is doing.

Do you have questions about buying or selling in the West End? Those are our stomping grounds, and we would be thrilled to help with whatever you need. Reach out today to info@sidorovainwood.com or call 416-769-3437 to start the conversation.

What Buyers and Sellers Should Know About Bank Appraisals

What Is Your Home Worth?