Differences Between a Home Appraisal and a Current Market Assessment in Ontario

Justo Team | August 21, 2019

Introduction

Chances are that if you are reading this article you are looking to buy and/or sell your home, but terms like Home Appraisal and/or Current Market Assessment (CMA) are foreign to you. Or maybe you are reading this and thinking to yourself, yeah, I have heard of home appraisals and current market assessments, but I am not totally sure what they are and how they are different.

Couple doing appraisal assessment in their home

Home appraisals and current market assessments are extremely important for those who are looking to buy and/or sell real estate. This information can help you determine if you are a buyer if you are overpaying for a home or if you are a seller how much you should be listing your home for.

However, a current market assessment might be more useful for a seller than a buyer and an appraisal might be more important for a buyer than a seller. In this article, we will explore and answer questions dealing with, what is a home appraisal, why are home appraisals important, what is a Current Market Assessment (CMA), when you would have a Current Market Assessment done, the similarities and between a Current Market Assessment (CMA) and a home appraisal.

What is a Home Appraisal?

A home appraisal consists of an independent, third-party, unbiased professional, appraiser’s assessment of a home’s fair market value. Their opinion, an appraisal, therefore is based on a variety of factors, such as age of the home, its size, the physical condition the home is in (i.e. is it in good shape or does it need a lot of work), the home’s features and amenities, the home’s previous sale price, the final sale prices for comparable homes that sold recently, and more.

It is important to remember that the appraised fair market for a home is usually different from its final sale price. However, a home appraisal is important because it can impact certain things such as your ability to get a mortgage, whether or not the deal goes through (if the home’s appraised fair market value is higher or lower than the previously agreed-upon sale price), and how much your homeowner’s insurance premiums will be.

It is important to keep in mind that a professional appraiser in Ontario is someone who has gone through specific training on how to do real estate appraisals, ideally is knowledgeable about the area, how much properties are going for and is an independent, impartial, third-party. In other words, the person doing your appraiser should never be the real estate agent or broker representing the buyer or the seller. You will need to find an independent, licensed, home appraisal professional, to do this.

A real estate appraiser has an important role in real estate transactions since appraisers can help buyers avoid overpaying for their homes since an appraisal is meant to help buyers discover a home’s fair market value. A real estate appraiser’s opinion is significant because their findings and conclusions can help lenders to decide how much they might be willing to loan their customers to purchase this home.

Lenders do not want buyers to overpay and do not want to over lend to their customers. In most real estate transactions, lenders will need for a home to be appraised before proceeding with a real estate transaction. Do not be surprised if you are selling your home and you are working with an all-cash buyer, who wants a home appraisal. Just because someone can make an all-cash offer for a home does not mean that they will not an appraisal to ensure that they are paying a fair price for the home.

Finally, if you are looking to refinance your mortgage for a loan with more favourable terms, you will also have an appraiser coming to your home. In this scenario, an appraiser will compile a report and this report with their findings will have a role in whether or not you will be able to refinance your home.

Lenders and mortgage brokers take an appraiser’s opinion with a lot of weight, because of appraiser’s knowledge, expertise, experience, and specialized training in property valuation. What this means for you is that you will need to find a licensed appraiser who you trust, who has an in-depth understanding of your area and your neighbourhood, the local economy, and the local real estate market.

For more information about Home Appraisals and how much they might cost in Ontario. Which deals with how much you can expect to pay for a home appraisal, how they work, how to find a professional real estate appraiser, why home appraisals are important, and more.

What is the Current Market Assessment?

Current Market Assessment (CMA), which is similar to a Comparative Market Analysis, is a process which real estate agents and brokers use to help sellers determine what they can realistically expect for potential buyers to be willing to pay for to purchase their home.

Real estate agents and brokers usually provide a current market assessment (CMA) and a comparative market analysis to potential clients who might be interested in retaining their services to have them represent them as the seller’s agent. While real estate agents and brokers can provide this complimentary service you can also do your own basic current market assessment if you have some time and are willing to do some research.

A current market assessment is created in part by creating a comparative market assessment. One creates a comparative market assessment by compiling the final sale prices for comparable homes sold in your area. Ideally, you would want to be looking at homes that are within five to six kilometres of your home, that have sold recently, that are a similar size, with similar features, similar size e.g. close to the same number of bedrooms and bathrooms, similar square footage/square meters, etc.

This helps determine how much you should list your home for, utilizing current information related to the housing and real estates markets, such as supply and demand in your area, the seasonality of the real estate market, a home’s location, features, amenities, size, and more.

While a current market assessment is similar to a home appraisal in that it gives some context into how much a property might be worth, with a similar set of criteria determining its value, i.e. similar to the criteria which determine a home’s fair market value, a current market value is meant to help the seller gain an idea of how much they should list their house for.

This is just a subjective estimate of your home’s value and what a buyer might be willing to pay for it, it is not legally or financially binding, therefore it should carry less weight than an appraisal.

Another useful tool you can use when doing a current market assessment and comparative market analysis is searching the tax records for Ontario. The Municipal Property Assessment Corporation (MPAC) in Ontario is the non-profit organization in Ontario charged with valuing, tax assessments to gain some insight into what comparable properties in your area have been valued at during the past few years for tax purposes.

While this only takes into account certain factors and is only updated a few years, it could be a good starting point. Also, checking the MLS for recently sold comparable properties in your area could be helpful for you. Using sites like Zillow which provide estimates for a home’s value can also be incredibly helpful as you do a current market assessment.

Similarities between a Home Appraisal and Current Market Assessment

Both a home appraisal and current market assessment are significant within the real estate transaction. One usually does a comparative market analysis and a current market assessment before putting their home on the market to sell and having a home appraised is usually one of the last steps in a real estate transaction before closing.

Both of these assessments of a home’s value have a tendency of influencing how much you might be able to expect to pay for a home as the buyer and how much you can get for your home as the seller. Both an appraisal and a current market will use local data, i.e. the final sale price of comparable homes recently sold in the area to help determine a home’s value.

Differences between a Current Market Assessment and a Home Appraisal

While an appraisal and current market assessment and comparative market analysis are all pretty similar, i.e. an appraiser builds their report and case for valuing a home or property with the same information used for comparative market analysis and current market assessment, the process for creating an appraisal diverges from here.

An appraisal is a more formal and detailed consideration of a multitude of factors which can affect a home and property’s fair market value, such as its size, location, its specific features, and amenities, if it has any land, the size of the lot it is located on, the condition of the home and property, quality of the materials used when constructing the house, both inside and outside, any improvements which may have been made, and more.

For more information on what professional appraisers are looking for, check out this article on home appraisals in Ontario. An appraisal is a more methodical, measured, in-depth consideration and examination of the different factors which could affect a home’s value, it is much more formal than a comparative market analysis and current market assessment since an appraisal considers a home’s physical characteristics plus all of the information that a comparative market analysis would be taking into consideration when determining what is a price that buyers might realistically pay for a home.

A current market assessment and a comparative market analysis use the same initial criteria as an appraisal, a current market assessment is meant for sellers so they can understand what potential buyers might be willing to pay and hopefully they can set an acceptable range when pricing and negotiating the sale price for their home.

A current market analysis looks more at current real estate trends, supply, demand, recent sales of comparable homes, but is not taking into consideration how a home’s physical features, home’s physical aspects and other things that an appraisal might take into consideration. You can consider a current market analysis and a comparative market analysis as some of the building blocks which help inform an appraiser’s final report for a home’s fair market value.

Home appraisal vs current market assessment

Finally, while appraisals are usually for lenders, financial institutions, insurance companies (when you are insuring your home and the contents inside of it), and buyers, an appraisal is meant to be objective. Only a licensed professional, real estate appraiser can do an appraisal and determine a property’s fair market value. A comparative real estate market analysis and a current real estate market assessment are subjective and have no legal value, financially, while they can be helpful.

A current market assessment and comparative market analysis are in no way, no shape, or form, legally binding, these are only subjective estimates of a home and property’s fair market value. Therefore, you should be taking the result from a comparative market analysis and a current market appraisal with a grain of salt since these figures are meant to be suggestions for what you can realistically expect to have potential buyers be willing to pay to purchase your home.

Conclusion

Both home appraisals and current market assessments are an important part of buying and selling a home. If you are looking to buy a home, insure, and/or refinance a home you should definitely have it appraised. While if you are looking to sell your home you should work with a competent, experienced, and knowledgeable real estate agent or broker who you trust, who can do a comparative market analysis and current market assessment, which can help you when figuring out how much your home is worth and how much you should list it for. While you might think your home is worth one thing, a current market assessment and/or appraisal may help you see that it might be worth more or less than you had originally thought.

For example, a home appraisal can be an important part of a real estate transaction since the results of an appraisal, has the potential to either help a sale go through or stop a sale in its tracks. In other words, was the appraised fair market of a home lower than the previously agreed-upon sale price, higher than the previously agreed upon-sale price or concurrent with the previously agreed-upon sale price?

A home appraisal can also be important if you are trying to ensure your home and its contents or refinance your home. Since if you are trying to refinance your home and it has increased in value since you bought it, this might make it easier for you to refinance your home. While the appraised value of your home and its contents can determine how much your insurance premiums and deductibles will be.

The results of an appraisal can determine how much you can expect to pay for homeowner’s insurance, how much money you might be eligible to receive if your belongings are damaged or stolen and need to be replaced. In other words, as a homeowner, you should take an appraisal seriously. However, there is no direct correlation between your ability to refinance your home or how much your homeowner’s insurance premiums will be depending on the current market assessment and comparative market analysis.

A current market assessment and a comparative market analysis include the data that a professional appraiser will be taking into consideration when coming up with the appraised fair market value for a home and/or property. However, a market assessment and a comparative market analysis are different than home appraisals in that these numbers are mainly used by sellers when determining how much money they should be listing their homes for.

A Current Market Assessment and Comparative Market Analysis are meant to help sellers gain insight into what they can realistically expect for potential buyers to be willing to pay for their home and/or property. This is mainly based on the sale prices for comparable properties recently sold in the area. And this does not tend to take into account any special features a home might have.

A home appraisal has to be completed by a professional home appraiser while a comparative market analysis and a current market assessment is something that you could do yourself by looking at sites which have the MLS and information on recently sold properties in your area that are comparable to your property.

And you can also consult the Municipal Property Assessment Corporation (MPAC) in Ontario’s, tax assessments to gain some insight into what comparable properties in your area have been valued at during the past few years for tax purposes. While these figures are only updated every four years, and properties are only assessed for tax purposes so an actual property’s fair market value might be different than its assessed value for tax purposes.

While your real estate agent or broker can do this for you, this is something that you can do on your own in a few hours. And you should probably be doing this before you consider working with an agent. It is recommended that you meet with at least three real estate agents or brokers before picking someone and you can always have each one that you meet with provide you with a comparative market analysis and a current market assessment, with their suggestions for how much you can realistically expect a buyer to pay for your home/property.

It is important to have a professional who is knowledgeable and experienced about working in your area to help you with this. While you might believe that your home after putting a significant amount of money, time, energy, etc. into improving it, buyers might not be willing to pay the price that you want to list it for.

In conclusion, it is important that you understand the difference between a home appraisal and a current market analysis, when they might be used, who might need them, who can do them, and how they can be helpful whether you are looking to buy a home or sell a home.

Whenever you are considering buying or selling a home, it is recommended that you consult a knowledgeable, competent, and experienced real estate professional, this can be a broker or real estate agent before you make any major decisions.

The right real estate agent or broker can make a world of difference if you are looking to sell or buy a home. If you are not sure about how to find a good agent and what to look for when finding a good agent, you can check out this article: How to choose the right real estate agent when buying a home in Toronto?.