Appraisals & Your Initial Home Valuation For Reverse Mortgages (And All Mortgages)

When getting a reverse mortgage – or any new mortgage on your home – establishing the home value is an important part of the process.

It’s not like when you purchased the home – where the purchase price became the value of your home – you now need some other way of establishing a value.

All lenders of all mortgages in Canada use an appraisal – performed by a licensed independent appraiser – as the acceptable form for establishing a value.

In this article I’ll discuss appraisals, how you can get an initial estimate of your home value and answer some common questions you may have such as:

• Should I stage my home for an appraisal?
• How can I get the best appraisal value?
• What if I disagree with the appraisal amount?
• Why can I not get a copy of the appraisal report?

As always, you can read the written article below or watch the video walkthrough:

Before I Get Into The Details: What Exactly Is a Reverse Mortgage?

If you’re new to reverse mortgages, you’re going to want to download my free guide to reverse mortgages – including CHIP and other options.

This outlines everything you need to know about reverse mortgages – including some information you probably won’t find anywhere else.

Estimating Your Home’s Initial Value

Before you even apply for a reverse mortgage or other mortgage you will want to find out an estimate of the initial value of your home – without having to pay for a full appraisal.

This is so you can use tools like my Free Reverse Mortgage Calculator to start to figure out if a reverse mortgage is right for you.

While there are numerous online tools at your disposal to estimate your home’s value, remember that these are just starting points.

Lenders will conduct their own appraisal, which could be either in person or automated, to determine the actual value.

While these online estimates are useful in helping you decide whether a reverse mortgage is worth pursuing, the reliability of these tools varies widely.

In British Columbia, the property assessment may actually be reasonably accurate and close to your home value (you can access these online). In other Provinces – such as Ontario – property assessments can be way off and not even close.

One way of getting a solid estimate of the initial value is to explore local real estate apps and websites – which can offer insights into your home’s value. For example, in the Greater Toronto Area (GTA), House Sigma can provide you an estimate of your home’s value (you do need to sign up for a free account).

Note: as mentioned above, the accuracy of these apps will vary drastically.

In addition to this, consultations with real estate agents can provide further guidance – though sometimes with a side of sales pitch!

Why Are Appraisals Necessary?

Appraisals are the cornerstone of the lending process for all mortgages – unless you are buying a home (and even then they may sometimes be used).

They offer an independent and unbiased assessment of your home’s value, ensuring that lenders have an up-to-date and accurate valuation, which is particularly important if you’ve owned your home for many years.

You may or may not have to pay for the appraisal – something that I discuss in more detail in this article on the costs & fees involved for a reverse mortgage: Reverse Mortgage Costs And Fees

The necessity of these appraisals becomes even more apparent when considering that the housing market is ever-fluctuating, and the value of your home today could be significantly different from when you first purchased it.

Automated vs. In-Person Appraisals

In recent times, automated appraisals have grown in their usage – where there is no in person visit to your home.

The type of appraisal you might qualify for – automated or in-person – depends on various factors.

These include the ratio of the loan amount to the home value, the property’s location, and the uniqueness of the home.

For example, if you’re looking to borrow $100,000 on a $1M home (10%), this is deemed lower risk and you have a better chance of getting an automated appraisal.

Here are the other factors that might lead you having an automated appraisal, as opposed to an in person one:

• Your home is a well populated area with plenty of recent sales (i.e. a big town or city)
• Your home is a Condo or Townhouse
• Your home isn’t particularly unique and not on a massive lot

For an in-person appraisal, the appraiser will consider factors like the size, layout, structure, and any unique features or recent renovations.

Interestingly, home staging has a minimal impact on the appraisal value since the majority of the valuation is derived from comparable sales in your area.

In fact, I’d go as far as saying 90%+ of the value you get will come from similar home sales in the area – so anything you do can only really influence the remaining 0% to 10% of small adjustments.

This is why automated appraisals are even possible – since the inside of your home has so little influence on the value – this is something I’m going to discuss in more detail below.

Limitations Of Appraisals

Appraisals, while essential, are not without their limitations.

Generally, appraisals provide a conservative estimate, which may be lower than the market price.

They often do not fully capture the essence of unique features or the value added by high-quality finishes.

For example, if your home is one of the nicer homes in an area with many unique features, fixtures and other positive aspects, it is likely that the appraised value will be ‘dragged down’ by the other homes in the area and not reflective of the real value of your home.

As a rule: the more unique the home and the higher the levels of finishes, the further (lower) from the real price the appraisal is going to be.

The appraiser’s focus is primarily on comparable sales in your area, adjusting for differences in size, condition, and features, but often not capturing the full uniqueness of a property.

Tips For Getting The Best Appraised Value

To maximize your home’s appraised value, you can do a few things.

Let the appraiser know about any recent positive sales in your area and provide a detailed list of significant improvements or renovations you’ve made.

These could include anything from a new roof to updated kitchen appliances.

Additionally, don’t hesitate to point out any unique features that set your home apart, such as an exceptional views, custom-built-ins, or energy-efficient upgrades.

While these will only make a small difference (see the above section on limitations) and the appraisal is largely based on recent sales in the area, you could potentially squeeze a little extra out of the appraised value.

However, I would not worry too much about the state of the home or the things you can do to influence the appraisal – remember these are only very small adjustments and recent sales make up 90%+ of the estimated price anyway.

What If You Disagree With An Appraisal Value?

It’s not uncommon to disagree with an appraisal, but it’s important to approach this situation with a level head.

If the appraised value is lower than you expected but still allows you to secure the necessary funds, it might be best to accept it as part of the process.

For example, let’s say you want to borrow $200,000 and you believe your home is worth $1M. The appraisal comes in at $800,000 but they still let you borrow the $200,000. My advice is to not take this personally and just approach it with the view that the appraisal has done it’s job.

The appraisal doesn’t impact any other aspect of your life and is immediately forgotten when the mortgage is closed. It’s just a piece of paper that helped you get the $200,000 you wanted.

However, if the appraisal is lower and you now can’t borrow the amount you’re looking for, some folks may want to consider their options.

If you believe the appraisal overlooked recent comparable sales, then requesting a second appraisal could be a viable option.

But if you are disagreeing with the appraisal based on it not valuing the unique features, finishes or styling of your home – then ordering a second appraisal is largely going to be a waste of time.

As I discussed above, this is simply a limitation of an appraisal and unique/stylish homes are always going to be under valued – there isn’t anything you can do about this I’m afraid.

Again – and I am repeating myself once more to really drive this point home – appraisals are almost completely based on recent sales in the area, so a second opinion might not fully align with your expectations, especially in terms of unique features or high-end finishes.

Why Can’t I Get A Copy Of The Appraisal Report?

A common frustration for homeowners is the lack of access to the full appraisal report, even though they are paying for it.

The reason behind this is that the lender is technically the appraiser’s client (not you) and so the appraisal is shared directly with them.

Some lenders may provide a summary of the appraisal, while others might not disclose any details or give you anything at all.

It’s worth noting that some employees could get in trouble for sharing a copy of an appraisal with you if their company forbids it – so remember that these policies are often set by the top level Executives in the lender and there is not much the employees dealing with your mortgage request can do about it.

Conclusion: Appraisals In Reverse Mortgage Applications

In the realm of reverse mortgages, appraisals are a crucial step in determining the value of your home and, by extension, the amount you can borrow.

Understanding the appraisal process, from automated vs. in-person appraisals to dealing with disagreements, is key to navigating this journey.

There is very little you can do to influence the result of an appraisal – since it’s largely based on recent sales in your area and the valuation of your home is often going to be on the lower, conservative side.

This isn’t an issue that’s unique to reverse mortgages – all mortgages in Canada have to deal with this issue since all new mortgages use appraisals. There is no perfect way to value a home but this is going to be the system for a while.

Remember, the appraisal is just one piece of the puzzle in securing a reverse mortgage that works for you and try not to get too stressed about it.

Free Professional Reverse Mortgage Assessment

If you’re considering a reverse mortgage and would like a free assessment – by a Chartered Accountant and the #1 Reverse Mortgage Broker in Canada – to find you the best deal and advise if this is the right solution for you, you can do so here:

Get A Free Professional Reverse Mortgage Assessment

This service is completely free and there are no pushy sales pitches – I simply provide the information for you and let you decide if it’s something you want to pursue.

Mich Sneddon, CPA, CA

A Canadian Chartered Accountant and licensed Mortgage Professional – creator of Reverse Mortgage Pros – the #1 reverse mortgage specialists in Canada.  I make it my mission to educate Canadians about how reverse mortgages work so that you can make an informed and educated decision that’s right for you and your family.