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An appraisal is a licensed appraiser’s professional opinion of a property’s market value, used by a lender to confirm the home is worth enough to support the mortgage, expressed as an appraised value that may differ from the purchase price.
A lender’s security for the loan is the property itself, so it needs independent confirmation that value supports the amount being lent. The appraised value, not necessarily the purchase price, is what the lender uses to calculate the actual loan-to-value ratio it is lending against.
Appraisals are commonly ordered for purchases (especially resale and uninsured files), refinances, and construction draws. On some insured and lower-risk files, lenders and insurers rely on an automated valuation model instead of a full onsite appraisal.
If the appraised value comes in below the purchase price, the lender typically bases the loan on the lower figure, which can mean the buyer needs a larger down payment or has to renegotiate the deal.
Ordered by or for the lender: the lender selects the appraiser, and the appraiser reports to the lender, not to the buyer.
Sets the lending value: if the appraised value is lower than the purchase price, the lender calculates loan-to-value using the lower figure, which can change how much financing is available.
Not always a full onsite visit: some insured and lower-risk conventional files are confirmed with an automated valuation model instead of a traditional appraisal.
Required for most refinances: lenders generally require a current appraisal to confirm value before approving a refinance or increasing the loan against home equity.
Definitions reflect Canadian federal and provincial rules as of the “Updated” date above. Not advice for any specific file.
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