Should you use a value estimator tool or hire a home appraiser?
Hiring a home appraiser is the best method of estimating the current value of a home (other than putting it on the market). Online value estimators can give you a great ballpark for what your home is worth, however, they may over or underprice as an online estimate may not have the full picture. An online estimate makes assumptions about the interior of the home and can only account for documented improvements that have been submitted to the city or county (permits). You may prove this claim by comparing estimates from different estimators or even looking at month-to-month fluctuations using the same tool.
The results are likely to be different because of the estimator’s algorithm, market conditions, nearby home sales, and the current state of the home. Market conditions change regularly, and an estimator algorithm may be unable to keep up. Below is everything you need to know about home valuation choices:
Quick take: What is my home worth?
- Lenders do not use the sweetly home estimate or other value estimator data to approve loans.
- Estimator tools generate estimates based on an algorithm (not as accurate as a home appraisal).
- The difference between a home appraisal and estimator tool is: The former requires a trained professional and the latter requires a computer algorithm.
- Lenders may require an appraisal for mortgage approval.
- You may include an appraisal contingency in the contract.
- An appraisal contingency may allow the buyer to keep the down payment and pull out of the deal without legal repercussions.
- You may hire an appraiser, but it is good practice to inform or consult with your lender prior to that.
- Lenders only lend up to the amount of the property’s appraisal value.
- Sellers may use estimation tools or competitive market analysis to find a suitable listing price.
What is the most accurate estimate of home value?
If you plan to sell a home, one of the biggest challenges you will face is pricing the home right. There are two ways to estimate the current value of a home or property.
(1) You may hire a home appraiser or have a REALTOR® conduct a Competitive Market Analysis.
(2) You may use value estimators like Sweetly’s home estimate that utilize an algorithm to determine your home’s worth.
(3) You can look at sold data in your area to find recently sold comparable homes in your area.
Value estimators, including Sweetly, Zillow, and Honest Door, are limited by their algorithms and market conditions. Consequently, the best way to estimate the current value of a home is by hiring a home appraiser.
A home appraisal is an expert opinion on the current value of a property based on market conditions, comparable properties, and the property’s current condition.
Is a home appraisal better than Zillow or other online estimate?
Yes. Why?
One, you cannot use an online estimate to secure a loan. Two, home appraisers have access to updated and more accurate data.
What is vital to remember is housing market trends change regularly. Experienced local appraisers keep up with the changes.
Is a “Zestimate” the same as a home appraisal?
A Zestimate or other online estimate is closer to Competitive Market Analysis than a home appraisal. The reason for that is Zillow provides a general idea or range at which you should sell a home or property. On the other hand, home appraisals protect the lender’s interests.
What to remember:
- You cannot use home valuator data to secure a loan in Canada.
- Home valuators/appraisers have access to updated, region-specific, and more accurate data than estimators.
- A home appraisal is an appraiser’s professional opinion on the current value of a home.
- Competitive market analysis is a REALTOR®’s opinion on the current market value of a home.
- Lenders order home appraisals as a prerequisite for lending.
Is appraisal value close to Zestimate or other online estimates?
It depends. According to Zillow, the company and others in the space rely on available data in the home’s area to estimate value. The issue is some areas have more detailed home data than others. Consequently, the more data available, the more accurate the estimate.
A home appraiser’s job is to collect data physically. Meaning, that the individual must be on site, and the estimate must be based on comparable properties within a one-to-two-mile radius of the subject home (preferably in the same neighbourhood).
Is Comparative Market Analysis the same as a home appraisal?
No. A Comparative market analysis, as mentioned, is a REALTOR®’s opinion on the current market value of a home and is only one of the tools that an appraiser may use to estimate the value of a home.
Which method of appraisal is best and why?
Unlike Zillow and similar estimation tools, a home appraisal relies on current market data, expert opinion, and an appraisal method suitable for the property.
The most common is the Sales Comparison Approach. As the name suggests, the Sales Comparison Approach compares selling prices of similar properties within a specified period. Typically, 90 to 180 days or up to a year.
The cost approach asks how much it will take to construct a similar property? The approach is best used on new or unique properties.
An appraiser will use multiple methods to determine the value of your home.
What to remember:
- Both a buyer and a seller may purchase a home appraisal.
- Buyers in Canada do not have an obligation to share the results of a home appraisal with the seller.
- The appraisal method depends on the type of property and lender requirements.
- Consult with your lender before you pay for a home appraisal (if the lender disapproves of the appraisal method or specific professional, you may have to pay for a second appraisal).
Should you use a home estimator tool or hire a home appraiser?
For the buyer, it is recommended that you hire a home appraiser. Your lender may have a list of approved appraisers in your area or specific requirements. Consequently, paying for a home appraisal before consulting with your lender may lead to wasted funds.
Can appraised value be higher than market value?
Market value indicates how much buyers in the area are willing to pay for similar properties. The appraised value is a professional’s opinion on the current value of a home. Either estimate can be higher than the other.
What to remember
- A home’s market value is based on what buyers are willing to pay for the home/property.
- You may increase a home’s market value by investing in improvements, staging the home, and knowing where to list the property. The idea is to make the home as appealing to buyers as possible.
- A home’s appraisal value is based on internal and external factors, including square footage, interior and exterior condition, location, curb appeal, and related factors.
For home sellers in Canada, it is in your best interest for the appraised value to be higher than the offer. Why?
You can negotiate a higher purchase price if the contract allows it.
To that end, we recommend consulting with a real estate agent. That way, you can target improvements, avoiding ones that add little to no value to the home.
What is a bank appraisal?
There are no laws that prohibit home buyers and home sellers in Canada from hiring a home appraiser. That means anyone can get a home appraisal. The issue is getting a home appraisal without your lender’s approval does not guarantee that you will get a loan.
Consequently, what you need to remember is -“bank appraisal” refers to an appraisal conducted by your lender. The lender may hire and pay for an appraisal, or you may have to pay for it.
What if an appraisal is lower than the offer?
The majority of lenders in Alberta will only lend the appraisal value. If a home appraisal is lower than the offer, your lender may only agree to pay the lesser sum. The buyer may negotiate a lower price or settle the difference out of pocket.
What is an appraisal gap clause, and how does it protect the buyer and seller? Find out here.
What is my home worth?
Your reason for asking the question “what is my home worth” dictates the approach. If you intend to sell a home or property in Alberta, the best way to price the property is through testing the open market or hiring an appraiser.
Both options will give you an estimate or range within which you should list the home. We recommend consulting with an experienced real estate agent in your area.
For buyers, your lender will require a home appraisal as protection for the loan. The idea is -if you default the mortgage, your lender can recoup the loss by selling the property.
In short:
- Use competitive market analysis or estimation tools to find an appropriate listing price. Competitive Market Analysis conducted by a REALTOR® is more accurate than the majority of estimation tools on the market. It considers comparable properties, current market data, and local expert opinion on the value of the property.
- Hire a home appraiser after signing a purchase agreement or upon lender request.
What to look for in a home appraiser in Alberta
- A local professional. Out-of-town appraisers may not have access to all the data, and may cost more.
- Look for experience, certification, or membership in appraisal bodies in the area.
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