Home Appraisals – A Key Renovation Tool
July 2, 2008
During the past several years, the home renovation industry has experienced phenomenal growth. As most home appraisers would agree, more and more homeowners are choosing to remain in their current residence as the cost and affordability of homeownership is skyrocketing. Some mortgage brokers and lenders are ordering more appraisal assignments that reflect two values within the report, namely “as is” and “as if the renovations are completed”. In order to adapt to the changing times, all parties- namely the homeowner, appraiser, mortgage broker, etc, need to familiarize themselves with the process.
The process of communication is fundamental for all parties involved. Homeowners are faced with questions like “How much do I spend on my renovations?” “What will be the return on my investment?” “What should I put my renovation dollars into?” The appraiser can help answer these questions by providing the appropriate tools available to the homeowner. The RENOVA page
on the Appraisal Institute of Canada website is an invaluable tool. Also, providing pre- and post- renovation appraisals can help a homeowner determine if the amount of money spent is worth their while. Another valuable tool would be the services of the HouseSmart “Home Services” Referral Network. Shell has been advocating pre and post renovation appraisals for years, as they can assist the homeowner immensely in their decision making. On the HouseSmart website, www.TheHouseSmart.com
, the Referral category lists all sectors of the building industry. The homeowner can rest assured that the service in the referral section of the site is the best of the “good, better, best” mantra, which Shell is well known for.
In providing the two values for the lender, according to the Professional Liability Insurance, it is essential to state what the appraiser saw upon inspection, and not what the appraiser would see upon completion of the proposed renovations. It is advisable to put “as is” or “as if completed” wherever the appraised value appears within the appraisal report. This is considered to be one pitfall of providing two separate values for a client. Also, an appraiser should not comment on building code compliance or quality of construction unless the appraiser has specific expertise. In doing so, a judge would deem the appraiser as an expert in that field where in actual fact, has no specific knowledge in that area. Sometimes a lender will request a cost to complete estimate on a specific property. This cannot be completed if the client has not provided a budget or cost estimate of the particular renovation or upgrade.
Simply providing an estimated cost to complete may not be enough to absolve the appraiser from liability insurance issues. It is good practice to back up and support any cost estimates, whether the estimates are provided by the client or a lender. Another pitfall would be to attribute value to materials that are simply on site. Provide a value on what you saw, not on materials on site that will be installed at a later date. The homeowner/builder can state that the drywall is on site but will be installed later this week. If the appraiser indicates that the drywall is completed, he is putting himself at risk where the appraiser himself will have to complete the task. Also, when providing the two values, it is important that the appraiser spell out in clear and concise language that two separate values will be provided, on “as is” and one “as if complete”. Explaining that the renovation is not complete and that the value contained is based on the assumption that the property will be completed should be clear in the appraisal report.
To avoid confusion, the appraiser must indicate the exact date to which the value estimate is applied. In summary, the appraiser should use due diligence and fully explain what was seen at the time of inspection. This simple act will not cause problems for both the lender and the client in the long run when any problems may arise.
In conclusion, there are resources available to help the appraiser and the homeowner in determining two values. The homeowner can use the services of an appraiser to provide and opinion on where to spend money so as to realize the maximum return on the investment. The services provided by Shell Busey’s HouseSmart “Home Services” Referral Network can be an invaluable aid for the homeowner as the site has been created with the homeowners’ best interests in mind.
As Shell says, “The HouseSmart “Home Services” Referral Network is about educating the homeowner and steering him in the right direction.” The appraiser is one medium in providing two separate values. Adherence to the Canadian Uniform Standards of Professional Appraisal Practice is essential and is just as easy as stating what was seen, not what will be done at a future date in time. Resources are available at the local library, on-line or the Appraisal Institute of Canada. It is just a matter of educating yourself and knowing how to access the proper resources.
-Jim Ballard, C.R.A. and proud member of Shell Busey’s HouseSmart “Home Services” Referral Network.