Understanding the difference between appraised value vs market value is extremely important when buying and selling real estate in Toronto. With rising interest rates and the market shifting (as of the time this blog post is being written), we are now seeing more appraisals being required by lenders. If you are buying a home or condo in Toronto and your lender requires an appraisal but you didn’t include a financing clause, you better hope that the appraisal comes in close to the amount you have offered, I will explain in further detail later.
The first thing to understand is the difference between appraised value vs market value. I’ve included a description of each type of value below in order to help you understand the difference.
What is An Appraisal and Appraised Value:
The appraisal/appraised value of a home is based on the opinion of a professional appraiser. Your lender may require an official appraisal to ensure that they don’t lend you more than the property is worth. Should your lender require an appraisal for a property you have purchased, the appraiser will likely arrange a time to visit the property in order to complete the appraisal. During the visit, the appraiser will take measurements, make notes and may ask questions about the property such as the age of the home, age of certain aspects of the home such as the roof, electrical system, HVAC system etc. The appraised value is the value that the appraiser determines based on their calculation. It’s common for the appraised value to come in lower than the market value (how much the home could potentially sell for when listed for sale). Should you receive an appraisal that you feel is unrealistic, you should request a second opinion. I once helped clients with the purchase of a home which required an appraisal and the appraised value came in at an amount that just didn’t make sense. We requested a second appraisal which came in at $150,000 more than the original one. Lesson learned, don’t always accept the first appraisal if you feel something is off.
It was less common for lenders to request appraisals prior to the pandemic and the recent interest rate increases when the Toronto real estate market was rising month after month with no sign of any change on the horizon. The pandemic and recently increased rates has changed that as we are now seeing more appraisals.
Appraisals are not only used for every day home purchases but also for other purposes as well. Below are some of the reasons why a home appraisal may be needed:
What if Your Appraisal Comes In Low:
When buying a home in a market that is experiencing an increased number of appraisals, it is important to avoid overpaying for a property as you could find yourself in a costly dilemma. Should you over pay for a property and your appraisal come in substantially lower than what you offered on the property, you could be required to pay the difference. As an example, if you purchased a home for $1,200,000 but the appraisal comes in at $1,000,000, you could be required to come up with $200,000 to make up the difference out of pocket.
What is Market Value:
The market value of a property is determined by how much buyers are willing to pay for a property. The market value of your home will fluctuate based on the condition of your local real estate market. During a seller’s market (more demand than available supply), the market value of your home will likely rise. In addition to a lack of supply, if rates are considerably low, this will create more demand and drive up the market value even more. Conversely, if rates are high and supply outweighs demand, the market value of your home will decrease. Regardless of which state your current local real estate market is in, there are ways to increase the value of your home which you can view HERE.
Hopefully the above information has been able to answer any questions you may have had about appraised values vs market values. Feel free to contact me should you have any additional questions that weren’t answered above.
Are you thinking about making a move or have questions about the current market? Contact me any time, I’m always happy to answer your questions.