Despite the crucial role they play in ensuring properties are fairly priced, there is a distinct lack of awareness around the processes followed in carrying out an appraisal. Even amongst experienced industry professionals, knowledge is limited and many believe an appraisal is simply a different word for a home inspection, but that is a misinformed view. As well as weighting factors that enable them to understand the specific dynamics of a valuation for each single building, appraisals also consider how those dynamics interact within the current market conditions. An inspection is just one piece of the larger appraisal jigsaw.
“Depending on the requirements for the appraisal assignment, the appraiser will most likely be required to inspect the property, which includes collecting information on the physical, functional and locational characteristics of the property - its condition, design, and size, etc.,” says Dan Brewer, President of the Appraisal Institute of Canada (AIC) and licensed mortgage and real estate broker. “The information collected on site will form part of the appraisal report both directly, as part of property description, or indirectly, as part of the comparative analysis and review of market data.”
A home inspection is typically conducted by a certified home inspector or engineer and results in an expert opinion on the structural integrity of a home; no opinion on the market value is provided to the homeowner.
When it does come the appraiser’s time to evaluate a building, there are three main types of reports they will be required to produce: form, concise narrative and comprehensive narrative. Form reports are more commonly used for completing appraisal reports on residential properties containing up to four residential units; they can also be used for vacant residential land within the same scope. The use of the form report is not limited to four residential units; however, designated members of the Appraisal Institute of Canada will decide, based on the nature and scope of the assignment whether a form report or a short narrative is more appropriate and functional.
“Narrative reports are most commonly used for broader scope assignments such industrial, commercial, institutional, agricultural and the like, and set out the key salient facts and conclusions in a summary fashion,” Brewer says. “Full narrative reports are more detailed and provide a comprehensive level of information and analysis. They are typically used for litigation purposes or other complex assignments.”