After you build your custom home, you’ll need to determine its value for insurance and tax purposes. A home appraisal determines the number that will be used to calculate both, and provides assurance to your lender that the amount you finance reflects the actual market value of the home.
To learn a home’s current market value, you’ll need to have it appraised by a professional. An important step in the home building process, two common approaches are used in home appraisals: the Comparison Approach and the Cost Approach.
Once we complete your Calgary custom home to your exact specifications, builders Fine Line Homes will help you understand the process of your home appraisal. Here we explain the two methods used in appraisals and what to do if your appraisal is not as fair as you thin it should be.
An Overview of the Cost Approach From Your Calgary Custom Home Builders
The Cost Approach method is most often used for existing homes in established areas. A professional home appraiser compares a property to the cost of three or four “comparables”, or similar properties that were recently sold in the area surrounding a home. The appraiser considers specific features of a home to calculate its value.
The following are considered in the Cost Approach:
- The size of your lot
- The style and age of your home
- Square footage of finished and unfinished spaces
This method also considers additional features such as fireplaces and garages, and provides an accurate estimate of the actual market value of an existing home. However, if you’re building a new home, your appraiser will probably use the Comparison Approach.
An Overview of the Comparison Approach From Your Calgary Custom Home Builders
This method is frequently used for new homes and is calculated based on the costs of rebuilding the home in the event it was completely destroyed.
The appraiser makes an estimate of the cost to replace any structures on the property, and then looks at the value of the land to determine the home’s overall value. This method accounts for the current cost of materials and labour, as well as appreciation or depreciation in land value, to determine an accurate estimate of a home’s overall value.
Tips on Your Home Appraisal Report From Your Calgary Custom Home Builders
After considering various features of the home including its condition, the surrounding neighborhood, the selling price of similar homes in the area (and how quickly these homes are selling), the appraiser will create a detailed report to support his or her determination of the home’s value.
An appraisal report typically includes descriptions of the following:
- Which method the appraiser used
- The size and condition of the home and its permanent fixtures
- Any improvements made to the home and the materials used
- Any serious structural problems
- The area surrounding the home
- Recent market trends in the area that could affect the value of the home
Appraisal reports often incorporate a comparative market analysis to support the appraised value and may include maps, photographs, and sketches.
Tips From Your Calgary Custom Home Builders: Handling a Low Appraisal Amount
The appraisal value of a home reflects the conditions in the current housing market. When those conditions change, the appraised value of a home typically changes as well. For example, if there are twelve homes in a neighborhood and five of them are in foreclosure, the appraised value of a home in that neighborhood is likely to be lower. When conditions in the housing market improve, the appraised value of the home is likely to increase.
If a home’s appraisal value turns out to be lower than expected, go over the appraiser’s report with the seller. Since lenders typically provide up to 80 per cent of a home’s appraised value (uninsured), the seller may lower the asking price to meet the appraised value. The buyer and seller may agree to meet somewhere in between, or the buyer might decide to make a larger down payment to meet the lender’s requirements.
Fine Line Homes: Your Calgary Custom Home Builders
At Fine Line Homes, “custom” doesn’t necessarily mean expensive! The Calgary Custom Home Builders at Fine Line Homes work within a budget to build the home of your dreams – without sacrificing any custom features you want included.
From the financing and appraisal processes, to selecting the right building materials and choosing just the right finishes, to taking possession of your new custom home, a professional will work with you every step of the way! At Fine Line Homes, if you can dream it, your Calgary custom home builders can construct it, and we’ll guide you through each stage of designing your custom home!