Homeowners need to be watchdogs
I got an email from a homeowner who was upset — that’s nothing new. But she wasn’t upset because a contractor ripped her off or because she got a bad home inspection. She was mad because of an appraiser.
She and her husband wanted to redo their kitchen. The previous owner of their home had done some renovations but it was all wrong. They had bad plumbing, bad layout, bad tiling, improper ventilation. And it looked ugly.
The new homeowners wanted it fixed. So they did what many homeowners do, they went to their bank for a home-equity loan. But they ran into a problem.
The appraiser the bank hired decided their home’s value couldn’t support the loan. So they couldn’t refinance their mortgage, which meant they couldn’t redo their kitchen. And now they’re stuck with a bad kitchen that will probably lead to bigger problems down the road.
Was the appraiser wrong? Was their home that bad? I don’t know. I haven’t seen the house. But the homeowners didn’t think so. That’s why they emailed me. They thought the appraiser didn’t have the right skills to evaluate their home. And I’ve got to wonder.
The appraisal industry works a lot like the home inspections industry. There isn’t a single set of standards. The skills you need to be an appraiser depend on the association an appraiser belongs to.
Some associations require a university degree as a first step, others a business degree. And some don’t require a degree at all. But most appraisal associations want some kind of designation. And again, what that designation is will be different for every association.
For example, one association requires its members to have a university degree — in anything. It could be sociology or art, it doesn’t matter. Then they have to complete a university-level education program specific to appraising.
Most of the courses in the program deal with real estate and business. But what about building skills, understanding the structure of a house, a basic understanding of construction, knowing how one part of a home affects another? Aren’t these skills important when you’re evaluating a home? For some appraisal associations, they are. But not always. It depends on the needs of the user who hired the appraiser in the first place.
When it comes to mortgages, banks care about a home’s selling price. If a homeowner can’t pay their mortgage, the bank will have to sell their house. Banks want their money back. They want to know how much they can sell a house for. And sometimes a home’s construction has very little to do with that.
You could have a house that cost $2 million to build, but an appraiser says it’s worth $600,000. Is this fair? Where was it built? Maybe the neighbourhood’s no good and no one wants to live there. In this case, the appraiser is saying that the only way to sell the house is if it’s priced at $600,000.
Then you’ve got a market like Vancouver or Toronto. You can’t buy a house downtown for less than $1 million. It doesn’t matter if it’s a shack. It’s all about land value.
More banks are starting to put pressure on appraisers. They’re looking to the U.S. and trying to avoid its mistakes. Inflated house prices plus record debt levels are a bad mix. They want to make sure that if an appraiser says a property is worth $500,000 they can sell it for $500,000.
The new homeowners wanted it fixed. So they did what many homeowners do, they went to their bank for a home-equity loan. But they ran into a problem.
The appraiser the bank hired decided their home’s value couldn’t support the loan. So they couldn’t refinance their mortgage, which meant they couldn’t redo their kitchen. And now they’re stuck with a bad kitchen that will probably lead to bigger problems down the road.
Was the appraiser wrong? Was their home that bad? I don’t know. I haven’t seen the house. But the homeowners didn’t think so. That’s why they emailed me. They thought the appraiser didn’t have the right skills to evaluate their home. And I’ve got to wonder.
The appraisal industry works a lot like the home inspections industry. There isn’t a single set of standards. The skills you need to be an appraiser depend on the association an appraiser belongs to.
Some associations require a university degree as a first step, others a business degree. And some don’t require a degree at all. But most appraisal associations want some kind of designation. And again, what that designation is will be different for every association.
For example, one association requires its members to have a university degree — in anything. It could be sociology or art, it doesn’t matter. Then they have to complete a university-level education program specific to appraising.
Most of the courses in the program deal with real estate and business. But what about building skills, understanding the structure of a house, a basic understanding of construction, knowing how one part of a home affects another? Aren’t these skills important when you’re evaluating a home? For some appraisal associations, they are. But not always. It depends on the needs of the user who hired the appraiser in the first place.
When it comes to mortgages, banks care about a home’s selling price. If a homeowner can’t pay their mortgage, the bank will have to sell their house. Banks want their money back. They want to know how much they can sell a house for. And sometimes a home’s construction has very little to do with that.
You could have a house that cost $2 million to build, but an appraiser says it’s worth $600,000. Is this fair? Where was it built? Maybe the neighbourhood’s no good and no one wants to live there. In this case, the appraiser is saying that the only way to sell the house is if it’s priced at $600,000.
Then you’ve got a market like Vancouver or Toronto. You can’t buy a house downtown for less than $1 million. It doesn’t matter if it’s a shack. It’s all about land value.
More banks are starting to put pressure on appraisers. They’re looking to the U.S. and trying to avoid its mistakes. Inflated house prices plus record debt levels are a bad mix. They want to make sure that if an appraiser says a property is worth $500,000 they can sell it for $500,000.
But if an appraiser’s job is to know how much a house is worth, they should know about construction. That’s basic. You should know how a home works, signs that tell you if there are any huge costs, the difference in finishes, how different improvements affect the value of a home and how different climates affect materials.
I’ve heard of homeowners having to point things out to an appraiser; things like radiant in-floor heating, low-E windows, a metal roof — even a finished basement. Or some appraisers will ignore mould, faulty electrical and HVAC. These have a huge impact on the value of a home.
Having a basic understanding of a home’s structure, materials and mechanics — and knowing how each affects value — is logical and essential. How do you value something you don’t understand? It’s like being a jewelry appraiser and not knowing about different stones, cuts, metals or colours.
Are business skills important for appraisals? Absolutely. But so are building skills. You need to know the signs that tell you what a house is worth. Believe me — a fresh coat of paint can hide a world of trouble. And it can be really deceiving for someone who isn’t trained to look for the signs.
We have good contractors and bad contractors. Good home inspectors and bad home inspectors. And good appraisers and bad appraisers. The good ones have strong associations backing them up. And the bad ones are bad because the industry allows it — we allow it.
If we want to change the industry, we all have to be watchdogs. If you think an appraiser is wrong, tell them. Speak to their association. You might need to point things out. They might listen. And you might help make it right.
Catch Mike Holmes in his new series, Best of Holmes on Homes, Tuesdays at 9 p.m. on HGTV. For more information, visit hgtv.ca. For more information on home renovations, visit makeitright.ca.
I’ve heard of homeowners having to point things out to an appraiser; things like radiant in-floor heating, low-E windows, a metal roof — even a finished basement. Or some appraisers will ignore mould, faulty electrical and HVAC. These have a huge impact on the value of a home.
Having a basic understanding of a home’s structure, materials and mechanics — and knowing how each affects value — is logical and essential. How do you value something you don’t understand? It’s like being a jewelry appraiser and not knowing about different stones, cuts, metals or colours.
Are business skills important for appraisals? Absolutely. But so are building skills. You need to know the signs that tell you what a house is worth. Believe me — a fresh coat of paint can hide a world of trouble. And it can be really deceiving for someone who isn’t trained to look for the signs.
We have good contractors and bad contractors. Good home inspectors and bad home inspectors. And good appraisers and bad appraisers. The good ones have strong associations backing them up. And the bad ones are bad because the industry allows it — we allow it.
If we want to change the industry, we all have to be watchdogs. If you think an appraiser is wrong, tell them. Speak to their association. You might need to point things out. They might listen. And you might help make it right.
Catch Mike Holmes in his new series, Best of Holmes on Homes, Tuesdays at 9 p.m. on HGTV. For more information, visit hgtv.ca. For more information on home renovations, visit makeitright.ca.
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House appraisal cost ? How much would it cost for a house apprisal. How close should be the offer price to the apprisal priceHome Appraisers
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