In speaking with one of our trusted mortgage brokers, they’ve said one of the biggest worries people have when buying a home is the appraisal coming in low. Thinking about it, we agree - this is a part of the process you as a consumer have no control over.
One note I want you to remember though... It's rare for an appraisal to come in lower on a purchase!
As one appraiser once said to me: "The best way to tell what a property is worth is by what it just sold for in the open market". Honestly, I rarely actually see an appraisal these days on a MLS purchase (most just auto-appraise), and when I do they almost always come it at sale price.
Clients with less than 20% down:
I almost never see an appraisal needed for these clients, unless the property is in poor shape, purchased privately, or under power of sale.
The main reason we rarely see appraisals needed is that there are so many comparable sales in this price range, and the mortgage insurers (CMHC, etc...) are responsible for determining the property value. Their automated Valuation model (AVM) algorithm is super generous, so this rarely happens.
For context, I can't think of a deal I have done in the last year for an insured purchase where the purchase price was not supported... not a single one!
Clients with 20% down:
If they're looking under a million, again we see very few appraisals needed as long as the property is urban, not a rental, in poor shape, purchases privately, or power of sale. There's usually enough comparables in the market that either the lender's AVM or the appraisal supports the purchase price.
If they're looking over a million (or more rural) and just have the 20% down, this is where there's a bit more risk at play simply because there are less supporting comparables, and the higher the price point, the more subjective the property evaluation becomes.
Again... I can't think of my last deal where a purchase price under a million wasn't supported by either an AVM or an appraisal (knock on wood!).
Clients with a massive down payment (think over 35%):
These are the easy files - almost no risk unless there's something wrong with the property itself.
If a client is buying a $900k home with $300k down and the appraisal comes in at $880,000, in the lender's eyes it's simply a $880,000 purchase with $280,000 down, and the client is kicking in the $20,000 difference. Easy!
Hopefully this can help relive some stress you have when thinking about mortgages. If you need any additional help we love working with Jim! https://jimstefflermortgages.com/
