Mortgage Broker

34 | winter 2015 mbabc.ca MortgageBroker the appraiser may view the purchasing contract in order to ensure chattels, or personal property is not included in the agreed purchase price so that the appraised value can truly reflect the value of the real estate only. Consumers and lenders should be wary of selling prices that are inflated – either through multiple offers or other local market factors. Myth: appraisers only consider past market/sales data when determining the value of a property. Reality: To provide a reliable market value, AIC-designated appraisers consider a number of factors such as: • Sales data of comparable properties within the last three years; • Historical sales from the same area as the subject property; • Comparable properties that are currently for sale; and • Current market conditions. Adjustments are made based on the sale price of the comparable properties that rely on market-derived elements of comparison. One of the key requirements under Canadian Uniform Standards of Professional Appraisal Practice ( CUSPAP) is for the appraiser to conduct a three-year sales history and a one-year listing history search and analysis of the subject property. is data considers private sales (non MLS) transactions as well as those on MLS. Other data sources, such as title and property registries, are also reviewed to ensure the most comprehensive and reliable market value is obtained. For more detailed information about the various methodologies used in real estate appraisals, please view Appraisal Institute of Canada's Industry Guide to Understanding the Fundamentals of Real Estate Appraisal (www. aicanada.ca). Myth: the appraiser is influenced by the client's need for a specific value. Reality: An AIC-designated appraiser has a professional and ethical responsibility to provide an independent and unbiased opinion of the value of a property. His/her work will produce the market value – irrespective of the selling price or a desire to reflect a certain value. All AIC members must comply with the Canadian Uniform Standards of Professional Practice (CUSPAP), a Code of Conduct and Regulations. As professionals, AIC members are obligated to prepare their work in compliance with these standards. If there are consumer complaints, AIC members will face AIC's disciplinary process. Myth: the appraisal can be shared with the home- owner since they pay the appraisal fee. Reality: e appraiser's client is the individual, entity or organization that orders the appraisal (either verbally in person, telephone, facsimile, Internet or email), not necessarily the person or organization who pays for the appraisal. For example, if a mortgage broker requests an appraisal, they become the appraiser's client and they will enter into a confidentiality agreement that is similar to other professional agreements with lawyers and accountants. is relationship is outlined in CUSPAP. e intended user section of the appraisal report is an area of the appraisal where the mortgage broker may provide permission to send the appraisal to a lender who ultimately may rely on the appraisal report. e appraisal report will not be shared with the homeowner without the consent of the client. Myth: appraisal Management Companies (aMC) are the appraisers' clients. Reality: When a lending institution requires an appraisal report on a property, it will oen engage an AMC to facilitate the appraisal process on its behalf. AMCs offer their clients (typically the lending institution) a single point of contact for the management of the appraisal function and have a contractual relation with both the lender and the appraiser. Depending on the contractual arrangement between the appraiser and the AMC, there may be limits to the communication and disclosure that the appraiser can make to the client and/ or to the lender. Myth: automated Valuation Models (aVMs) are more accurate than an on-site appraisal Reality: AVMs provide an assessment of property values based on the compilation of sales data. Although they provide some important information, an over reliance on AVMs poses a risk for lenders, consumers and the financial system. Why? Well, a value generated by an AVM will not be able to consider certain elements that are critical to a value of a property, including the: • Maintenance provided to the property and its current condition; • Updated data on the location of the property and its surroundings; and • Intangible features of the property. e best option to minimize the lending risk for residential properties is to have a visual on-site appraisal and on-site collection of data conducted by a qualified appraiser. An on-site appraisal will determine the existence of the property (including the buildings), the occupancy, condition of the property, the neighbourhood characteristics, and other key factors that are critical to the value. is due diligence ensures the decision-maker has a reliable appraisal report with a well-supported opinion of value. Myth: When a homeowner is completing renovations they can expect that the value of their home will rise proportionately to the investment.

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