Bank Evaluations and Their Purpose

So the time has come, you’ve listed your home for sale with your favourite brokers at Groupe Baronello, a few visits come and go and you finally get an offer that seems interesting to you! After having negotiated, accepted, passed through inspection and all your broker advises you that the bank will be passing by for a quick evaluation! Cue alarms going off in your mind 🚨🚨🚨 panic mode begins 🚨🚨🚨 At this point you are questioning everything: why the bank wants to evaluate your home, is it worrisome? Should you stage and clean the home? How does it work?

Truth is, there is nothing to panic about at all. Here is everything you need to know about Bank Evaluations

Why are they typically done?

 Usually the bank calls for evaluations in two circumstances. The first is simple, they are questioning the value of the property in comparison to the recently sold homes in the area (i.e. your home sold for 1,000,000$ and all of your neighbours sold for $700,000) and two (the much more common reason) is the buyer has a down payment greater or equal to 20%. When buyers put less money down, the mortgage is guaranteed by CMHC or Genworth, meaning if the buyer were to default on their payments, the bank would be guaranteed a reimbursement and the CMHC would be the one to repossess the home. When a buyer’s down payment is 20%+, the CMHC/Genworth are no longer involved, the bank is taking on more risk and to that effect they want to be able to guarantee that the home is what it was presented to be on centris/to the buyers.

Should you be worried about it?
In short, no. – Bank evaluations are very typical in the two above-mentioned scenarios and unless your home has sold for way above the market comparables (think 25% or more above the neighbourhood standard) or is in a lot of need for renovations/repairs then you have nothing to worry about.
How long does an evaluation take and what does it entail?
Usually an evaluation is scheduled about 24-48hours in advance and is a property visit of no longer than 25-30 minutes. The evaluator comes to your home, takes a few pictures of the interior and exterior and asks you a few questions about recent renovations, issues you may have had and other important information they may need. Once the evaluation is done, the evaluator usually sends a detailed report back to the bank (that you – the seller does not have access too) within 24-48hrs and the bank provides their response to the parties involved.
Is an evaluation the same as an inspection?
No – An inspection is a thorough review of the properties main components and takes roughly 2-3 hours, whereas an evaluation is done in 15-20min and uses neighbourhood comparables to justify the sale price.

Truth be told, evaluations are used as a way to protect the banks against money laundering and high risk lending. The bank’s goal is to lend out money to buyers with the least amount of risk associated with the mortgage and should the purchaser default, then they must have a way to guarantee that the home’s value will cover at least the mortgaged amount. They are much more common than home buyers and sellers believe them to be and in no way mean anything negative!

Thinking about selling your home? Give us a call to discuss all the details and steps involved!