How Does an Appraisal Work?

MyMortgageBC.com note: The most common approach for estimating residential values for mortgage purposes is the comparison approach.

An appraisal is an estimate of the current value of the property (the 'subject property'), using one or both of the following techniques;

1. The majority of residential appraisals use the market value comparison approach, comparing recent sales of similar properties ('comparables' or 'comps' in real estate jargon) and adding and subtracting the differences in value of the same features in the subject property. For example, if a house of the same size on the same street and in the same condition as the subject property recently sold for $200,000, but this 'comparable' had a triple garage and a finished basement and the 'subject' does not; the appraiser calculates the market value of these features (say, $12,000 in total) and deducts this amount from $200,000, giving an 'adjusted value' of $188,000. This is usually done with at least three 'comparables' and either averaged or the middle ('median') value used.
2. A supporting measurement of value used by many appraisers is the "depreciated cost" approach, whereby the land value is estimated and added to an estimate of the depreciated building value. Where there are few comparables available, relatively more weight might be given to this method.

MyMortgageBC.com is a mortgage broker located in the Vancouver, Surrey area serving all of the lower mainland of British Columbia.