You’ve chosen your new condo, reviewed the plans, agreed on a price, and qualified for the mortgage. Now it’s time to see if the appraiser agrees with the transaction.

Impartial estimates of value of a given property as of a specific date, the appraisal marks the final step in closing a residential mortgage application. It’s purpose is to support the purchase price, or rather, the loan value.

The Appraisal Institute of Canada is the umbrella organization overseeing professional real estate appraisers and valuation consultants nationwide, like Janet Aspinall, Price Aspinall Appraisals Ltd.

“If we (appraisers) are called in, there are a number of reasons: a person has bad credit, the unit has been upgraded so it doesn’t fit the parameter of the existing agreement, or there is something else.

“We’ll contact the builder and get all the information on the complex that we can, including unit sizes, what units have sold, what units are left, what kind of upgrades there are. Then we would do an analysis of what has sold in the complex and compare it to what has sold in comparable complexes to make sure the price that person is paying is reasonable in the marketplace.”

The function of the appraisal has changed over the past number of years. Ultimately, in order to meet the market need, Canadian Mortgage and Housing Corporation (CMHC) developed a program based on an evaluation model system, which eliminated the need for an appraisal in certain circumstances. CMHC insures the financial institution against loss. It insures the loan. In other words, they guarantee the loan won’t go bad for the financial institution.

In the evaluation system, the creditor and the properties get put through a computer program. If they meet the parameter of the program, there is no appraisal required. If you have good credit, you’re going to meet the criteria, and as long as the building is within a window of value, there are not going to be any red flags. If one of those two components is out, there’s going to have to be an appraisal.

“We’re actually contracted to protect the financial institution’s interest in that loan,” adds Aspinall. “We are protecting the consumer. If they do overpay, then we’re sending up the red flag. Sometimes when someone buys a new condominium unit, they might upgrade that unit far beyond what’s reasonable in that marketplace. Let’s say you have a unit in a building where the average price is $120,000. Then you put in all kinds of stuff and the unit goes from costing $120,000 to costing $150,000. We may be called in if you’re trying to get a mortgage for $150,000. We may not be able to prove what you’re actually paying for that unit, simply because in the marketplace, the next purchaser will likely not be willing to pay more for those extras.”

A lot of market research is involved in an appraisal, taking each unit on an individual basis. If the complex has a mixture of units, where each floor has the same floor plate, so that you have the same units on each floor, they usually go up in value per floor. That’s not always the case, however. Sometimes buildings will have really nice patios on the main floor that may be oversized, so they’ll charge more for the main floor. The second floor might be a little less, the third floor will be more, and then the top floors will be higher. Sometimes it may be a mixture where no units are the same in a complex. In that case, each unit is very individual.

Appraisers are independent. Some of the financial institutions employ companies or people that are appraisers. Under the guidelines, if a person is designated, they have to be insured by one of the major appraisal institutions in Canada. When an appraiser joins one of those institutions, they have to follow their guidelines. Whether a person is institute-employed or self-employed, they have to offer independent opinions of value based on the professional guidelines.

“Basically, what we are is an association that provides independent opinions of value. Opinion is based on individual experience and ideas. The opinions have to be based on fact, but unfortunately a lot of the information we deal with is somewhat subjective. In amongst appraisers, one person can have a very different opinion from somebody else, but they can also have very good proof for that. It’s just a way of interpreting the data.” But it all comes down to market value.