Whether you’re selling or buying, understanding a property’s market value is essential to make sure the sale price aligns with the realities of the real estate market. For this, you will need a property appraisal.
It’s important to note that relying solely on the municipal assessment value isn’t sufficient to determine a fair price for your property. Instead, depending on the situation, it’s advisable to hire a certified appraiser or consult your real estate broker.
Certified appraisers or real estate brokers: which expert should you choose?
Both certified appraisers and real estate brokers possess the necessary skills to assess your property’s market value. However, they operate in quite different contexts.
A certified appraiser has extensive training in evaluating residential or commercial properties, enabling them to provide a more accurate estimate of your home’s value.
They will also deliver a detailed appraisal report, which is valuable for securing a mortgage from a financial institution or negotiating your home’s sale price. However, these benefits come with a cost that you won’t face when working with a real estate broker.
In contrast, a real estate broker can help you achieve two objectives at once: they estimate your property’s price and assist you throughout the sales process, all without additional costs for an appraisal.
In both cases, these professionals are members of recognized professional organizations, ensuring you receive quality service.
How to assess the market value of a property?
No matter which expert you choose, they will use one of three recognized real estate appraisal methods in Quebec:
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The comparable method
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The cost method
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The income method
Here’s what you need to know about each method to understand how your property’s value will be assessed.
1. The comparable method
The market value of a property is defined as the most probable price that can be obtained on a competitive open market at a specific time, with all parties being well informed.
The most widely used method to determine this value is the comparable method, which allows for a straightforward and quick analysis.
This method involves comparing the property being appraised to other similar properties that have recently sold in the neighbourhood or municipality. By evaluating specific criteria, the certified appraiser or real estate broker will identify comparable properties for the appraisal. Using a selection of three to ten properties, they can estimate the value based on observed sale prices.
Here are some characteristics that will be analyzed to select comparable houses:
- Year of construction
- Lot size and living area
- Number of floors and rooms
- Presence of a pool
- Quality of finishes
- Presence of a garage
- Exterior condition of the property
Since no two properties are ever identical, it’s crucial to make adjustments by determining the contributory value of each characteristic. If needed, these amounts will be added to or subtracted from the comparison price to align the comparable with the property being appraised.
For instance, an adjustment will be necessary when the selected comparable property has a garage and yours does not or if your single-family home has a pool while the comparable property does not. Once these adjustments are made, you can average the sale prices to establish the market value of the appraised property.
The comparable method has the advantage of being grounded in the realities of the real estate market. It provides direct evidence of market value and is especially useful for assessing residential properties or vacant land.
2. The cost method
Sometimes, certain types of properties are sold too infrequently in a specific area to effectively use the comparable method. In such cases, the appraiser may turn to the cost method. This process involves three steps to obtain a comprehensive evaluation:
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Calculating the value of the land.
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Calculating the cost to replace the buildings or any taxable elements.
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Deducting depreciation due to age and other factors that may impact the property's value.
Unlike the comparable method, the cost method provides what is known as indirect evidence of a property’s value. This method is rarely used and typically does not apply to properties owned by individuals.
Appraisers commonly use this method to assess commercial, industrial, or specialized buildings, as well as for evaluations involving heritage properties.
3. The income method
This method is more complex and required knowledge of financial mathematics. It also provides indirect evidence of a property’s value.
The income method is used to assess the market value of rental income properties. It can be applied to residential income properties with more than six units, as well as commercial and industrial properties. However, it is advisable to corroborate the results obtained with another evaluation method.
When using the income method, a thorough analysis of the property’s financial situation (income and expenses) is essential for the assessment. This income generated from rentals directly impacts the property’s market value, and the ratio of income to sale price will also be taken into account.
For residential properties with fewer than six units, the comparable method can typically be used. However, certified appraisers often employ a mixed approach that considers both the real estate market and income.
How much does a property appraisal cost?
The cost of a property appraisal in Quebec varies based on several factors, primarily the type of expert conducting the assessment.
If you work with a real estate broker, the appraisal is typically free. However, you will pay a commission if your home sells.
For a certified appraiser, you should budget around $500 for a single-family home. Additionally, the appraisal cost may vary depending on specific characteristics of your property such as the neighbourhood, type of building, year of construction, and any renovations made.
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