What Is a Real Estate Appraisal? A Manitoba Guide

If you are buying, refinancing, settling an estate or dividing property, you will probably hear the word appraisal early in the process. Many people have a general idea of what it means but are unsure what an appraiser actually does, why the number matters so much, or how it differs from the other values attached to a home. This guide explains the basics in plain language, with a focus on how appraisals work here in Manitoba.

At Burley Appraisals we have completed residential appraisals across Winnipeg and Southern Manitoba for more than 35 years. The questions below are the ones we hear most often from homeowners, buyers and executors.

The short definition

A real estate appraisal is an independent, professional opinion of a property's market value as of a specific date. Market value is the most probable price a property would sell for in a competitive, open market, between a buyer and seller who are both informed, acting in their own interest, and under no unusual pressure to complete the deal.

Three words in that definition do a lot of work. Independent means the appraiser has no stake in the outcome: they are not paid more if the value is higher, and they are not representing the buyer or the seller. Opinion means the value is a reasoned professional conclusion, supported by evidence, rather than a calculation that any two people would reach to the dollar. Specific date means the value applies to one moment in time. Markets move, so an appraisal from two years ago does not describe today.

Who orders an appraisal, and why

Most residential appraisals are ordered for mortgage lending. When a bank or credit union lends money against a home, the home is the security for the loan. The lender needs an independent confirmation that the property is worth enough to support the amount being borrowed. That applies to purchases, refinances, equity takeouts and some mortgage switches.

Appraisals are also ordered for many reasons that have nothing to do with a lender:

• Estates. Executors often need the value of a home as of the date of death, for distributing the estate and for tax reporting.
• Separation and divorce. Dividing family property requires an agreed or independent value for the home.
• Private sales. Buyers and sellers dealing directly, often between family members, use an appraisal to set a fair price.
• Tax and accounting. Changes in use, transfers between related parties and capital gains calculations can all call for a supportable value.
• Personal decisions. Some owners simply want an objective view before listing, renovating or buying out a co-owner.

What the appraiser does

A residential appraisal follows a fairly consistent process, although every property brings its own details.

1. Defining the assignment

The appraiser confirms who the client is, what the appraisal will be used for, the effective date, and exactly what is being appraised. This sounds administrative, but it matters. A report prepared for a lender follows a different format from one prepared for a family law matter, and a farm residence appraisal needs a clear decision about how much land is included.

2. The inspection

The appraiser visits the property in person. For a typical home the inspection takes 30 to 45 minutes; an acreage takes 45 minutes to an hour. They measure the exterior to calculate living area, walk through every room, note the layout, finishes, condition and updates, look at the basement, mechanical systems, garage and site, and take photographs. On rural properties they also look at water supply, wastewater systems and outbuildings.

3. Market research

Back at their desk, the appraiser researches recent sales of similar properties, ideally in the same neighbourhood or community. They also look at current listings and at the broader trend in the market: whether prices are rising, stable or softening, and how quickly homes are selling.

4. Analysis and adjustments

No two homes are identical, so the appraiser adjusts each comparable sale for differences from the subject property. If a comparable has a double garage and the subject has none, the comparable's price is adjusted downward to reflect what buyers in that market pay for a garage. The same logic applies to size, condition, location, lot, basement development and many other features.

5. The conclusion and report

After weighing the adjusted comparables, the appraiser reaches a conclusion of value and documents it in a written report. A good report explains the reasoning clearly enough that a lender, lawyer or homeowner can follow how the number was reached.

The approaches to value

Appraisers recognise three main approaches to estimating value. For most homes in Manitoba, one approach does most of the work.

• Direct comparison approach. The value is estimated from recent sales of similar properties. This is the primary approach for nearly all residential appraisals because it reflects what real buyers have actually paid.
• Cost approach. The appraiser estimates the cost to build the improvements new, subtracts depreciation, and adds the value of the land. It is useful for newer homes, unusual properties and some rural properties where sales are scarce.
• Income approach. Value is estimated from the income a property can produce. It is mainly used for rental and multi-unit properties.

How an appraisal differs from other values

Homeowners often see several different numbers attached to their property, and it is easy to confuse them.

Your municipal assessment is prepared by the City of Winnipeg or your municipality for property tax purposes. Assessors value thousands of properties at once using a fixed reference date, so the assessment can lag the market or miss features specific to your home. It is not intended to be a current market value for an individual property.

A comparative market analysis from a realtor helps set a listing price. It can be very well informed, but it is prepared by someone whose role is to market the property, and it does not carry the independence or standards of an appraisal.

An online estimate is generated by an algorithm with no knowledge of the inside of your home. It can be a reasonable starting point but often misses condition, updates and local factors that matter a great deal in Manitoba markets.

What makes a good appraisal

A reliable appraisal comes down to three things: a careful inspection, the right comparable sales, and clear reasoning. Local knowledge is a large part of the second. In Winnipeg, two neighbourhoods a few kilometres apart can follow very different price patterns. In the Pembina Valley, a sale in Morden is not automatically a good comparison for a home in Winkler. An appraiser who works in these markets every day knows which sales a real buyer would consider.

How long does it take?

For a typical home, the inspection takes 30 to 45 minutes (45 minutes to an hour for an acreage), and our reports are usually delivered within 2 business days of the inspection. Larger acreages, complex properties and retrospective assignments can take longer. If you have a lender deadline, tell us when you order.

Getting an appraisal in Manitoba

Burley Appraisals appraises homes throughout Winnipeg, the Perimeter communities, Steinbach, Portage la Prairie, the Pembina Valley and the rest of Southern Manitoba. If you have questions about whether you need an appraisal, or which type, call us and we will help you work it out. When you are ready, you can order an appraisal online.

Frequently asked questions

This article is general information, not legal, tax or financial advice. Speak with a qualified professional about your situation.