What Lenders Look For in an Appraisal

When you apply for a mortgage, your lender wants to know two things: can you repay the loan, and is the property good security if you cannot? The appraisal answers the second question. Understanding what lenders look for in an appraisal report helps borrowers prepare and avoid delays.

Why lenders need an appraisal

A mortgage is secured by the property. If a borrower defaults, the lender may need to sell the home to recover the loan. Lenders therefore want an independent opinion that the home is worth enough, that it is in reasonable condition, and that it could be sold in a normal market without unusual difficulty. Loan-to-value ratios, insurance requirements and approval decisions all depend on the appraised value.

What lenders check in the report

Market value

The headline figure is the value. Lenders compare it with the purchase price or the requested loan amount. If the value is lower than expected, the loan amount may change.

Comparable sales and reasoning

Underwriters review the comparable sales and adjustments to make sure the value is well supported. Sales that are old, far away or very different from the subject property can lead to questions.

Property condition

Lenders want to know whether the home is in reasonable repair. Significant issues, such as a failing roof, foundation problems, water damage or incomplete renovations, may need to be addressed before or after funding.

Marketability

Lenders consider whether the property would be easy to sell. Unusual designs, properties in very small markets, homes next to incompatible uses and properties with limited buyer appeal can all affect how a lender views the security.

Legal and zoning matters

Appraisers note the property's use and zoning as they understand it. Unpermitted additions, unauthorized suites or non-conforming uses can lead to extra questions from underwriters.

Common issues that cause delays

• Incomplete construction or renovations. Unfinished kitchens, bathrooms or basements may require a holdback or completion inspection.
• Health and safety items. Missing handrails, exposed wiring or non-functioning heating can trigger conditions.
• Rural servicing. Lenders may want water potability tests or septic information for acreages.
• Large acreages and farm land. Many residential lenders limit how much land they will finance on a residential mortgage.
• Secondary suites. Lenders vary in how they treat suites and rental income.
• Access problems. Locked rooms or uninspected areas limit the report.

Purchase versus refinance

For a purchase, lenders compare the appraised value with the contract price and use the lower of the two to calculate the loan-to-value ratio. For a refinance, there is no sale price, so the appraisal is the main evidence of value. That makes refinance appraisals especially important.

High-ratio and insured mortgages

When a buyer puts down less than 20 percent, the mortgage generally requires default insurance in Canada. Insurers have their own processes for confirming value, which may include automated valuations or full appraisals depending on the property and the lender. Your broker or lender can tell you what applies.

How borrowers can help

• Provide clear access to the whole property, including outbuildings and suites.
• Share a list of updates and any permits or warranties.
• Disclose known issues rather than hoping they are missed.
• Tell your lender early about anything unusual: acreages, suites, home businesses or recent renovations.
• For rural properties, have water and septic information ready.

Why independence matters to lenders

Lenders rely on appraisals because they are independent. Rules and lender policies generally keep borrowers, realtors and loan officers from influencing the value. That protects everyone. A borrower who pressures an appraiser risks having the report rejected and the file delayed.

Appraisal management companies

Many Canadian lenders do not hire appraisers directly. Instead they use appraisal management companies that receive the order, assign it to an appraiser on their panel, and review the finished report before passing it to the lender. If your lender works this way, you may be contacted by the management company rather than the appraiser. The appraiser still inspects the home and writes the report, but questions and review requests typically flow through the company. Knowing this helps borrowers understand who to call and why there may be an extra step between the inspection and the lender's decision.

Reports lenders can rely on

From the lender's point of view, a good appraisal report is one that answers questions before they are asked. It clearly identifies the property, explains its condition, uses comparable sales a reviewer would expect to see, and comments on anything unusual: a suite, an addition, a rural water supply, a flood zone or a busy road. When those points are covered in plain language, underwriting moves faster and borrowers get answers sooner. When they are missing, the file can sit while the lender asks for clarification.

Borrowers can help by telling us about anything unusual at the time of ordering. A heads-up that the home has a suite, a recent addition or a shop on an acreage means the inspection and the report can address those features directly.

Local knowledge and lender confidence

Underwriters in other cities may not know the difference between a home in Linden Woods and one in the West End, or between Winkler and Plum Coulee. A clear report from a local appraiser, with well-chosen comparables and plain explanations, makes their job easier and reduces follow-up questions. That is why our reports explain local factors, from Winnipeg's clay soils to Red River Valley flood considerations.

Lender appraisals across Manitoba

Burley Appraisals' reports are accepted by major banks and credit unions operating in Manitoba. If your lender has a specific ordering process, let us know. Order online or call us.

Frequently asked questions

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