What to Expect from an Appraisal


Appraisers use selective market research and various analytical techniques to determine the market value of a property. Three different types of appraisals each require different information and techniques.

  1. Sales data report. A sales data report is based solely on sales data and does not include a physical inspection of the property in question. Typically, a sales data appraisal report is used for residential properties located in low-risk, marketable areas.
  1. Limited-restricted appraisal. A limited-restricted appraisal is a “drive-by” appraisal. The appraiser bases the appraisal only on the exterior appearance of the property. Such an appraisal contains more details about the neighbourhood and exterior of the property than a sales data report.
  1. Full review. Also known as a full internal appraisal, a full review includes a detailed inspection of the interior and exterior of the property, as well as neighbourhood details. This type of appraisal may be required for:
    1. Private sales or for transactions not listed on a listing database
    2. High loan-to-value ratio
    3. Non-sales transactions, such as refinancing or renovation loans

What does an appraisal report include?

Regardless of the type of appraisal and its purpose, certain information must always be included in the appraisal report. RECA requires appraisers to disclose:

RECA also requires that appraisal reports:

Additionally, members of the Appraisal Institute of Canada (AIC) are required to include:

Other professional appraiser associations have similar requirements of their members.

An appraiser who signs a certification of value as part of an appraisal accepts responsibility for the appraisal and the contents of the report.

Approach to value

There are three ways for appraisers to arrive at a formal opinion of value.

1. The cost approach estimates the cost to build a new building identical to the subject being appraised, at current prices, subtracting accumulated depreciation and adding the estimated land value. This approach is most useful when there are few comparable properties to be used for a direct comparison approach, such as with luxury homes or recreation properties.

This approach cannot be used to estimate the value of high-rise or townhouse condominiums.

In order to use the cost approach, an appraiser must:

2. The direct comparison approach is based on the theory that an informed purchaser would pay no more for a property than the cost of acquiring another existing and equivalent property. The value estimate is based on the selling price and listings of comparable properties, and the appraiser makes adjustments, upwards or downwards, for elements that are different between the properties.

Suitable comparable properties should:

Once an appraiser has determined which comparable properties will be used, adjustments are made to take into account features that differ between the subject property and the comparables. Positive adjustments are made to a comparable property in areas where the subject property is superior. Negative adjustments are made to a comparable property when the comparable is superior to the subject property. The final value of the subject property should fall within the range of values for the properties used in the comparison.

3. The income approach relates to and is most often used for income-producing property, such as commercial or industrial. This approach is based on the theory that value is the present worth of the income stream which the property is capable of producing when developed to its highest and best use. The rental income that a property generates annually is calculated and annual operating expenses associated with the property are subtracted. The result is the net income from the property. The annual net income is converted to a single dollar value, which represents what this annual income in the future is worth today. This is the value for the property.

Some appraisals will use a combination of different approaches to value. Most often the decision of which approach to use depends on the purpose of the appraisal and the type of property.