Appraisals aren’t all the same, and using the wrong one can stall your plans.
If you're arranging financing, closing a sale, or making an investment, the type of valuation matters. A residential appraisal won’t work for a retail unit. A commercial appraisal won’t suit a private home.
The two reports are designed for very different types of property. They follow different rules, serve different purposes, and use different valuation models. Lenders look for the right type, and using the wrong one can lead to delays or rejection.
This article breaks down how each appraisal works and helps you figure out which one you actually need.
A residential appraisal is simply a professional estimate of what a home would sell for right now. Mortgage lenders request it to make sure they aren’t footing a loan larger than the property’s actual worth. Buyers rely on it to stay grounded. Sellers use it for pricing wisely.
Here’s how a home appraisal in Toronto works: the appraiser stops by, walks through the house, and checks the essentials—room layout, square footage, upgrades, and general condition. They also consider neighbourhood factors like school zones, transit access, and recent sales activity.
Next, they pull up a few comparable homes—“comps”—that recently sold nearby. Comparing these helps pin down a realistic market value. In fast-moving markets like Toronto, this step keeps everyone on track: buyer, seller, and lender.
A commercial appraisal calculates the value of properties built to generate income—like office buildings, retail spaces, warehouses, or multi-unit complexes. The focus isn’t on curb appeal; it’s on money in versus money out.
The appraiser gathers lease documents, rent rolls, vacancy statistics, maintenance costs…basically the numbers that show how much the property earns and spends. From that, they calculate net operating income (NOI).
Then, they apply a capitalization rate (cap rate)—which reflects local market demand—to convert Net Operating Income (NOI) into a value estimate. For newer or specialty properties, they might also look at what it would cost to rebuild.
The result? A number that tells investors and lenders how well the property performs—and what it’s realistically worth.
Residential and commercial appraisals use different methods to determine value because they serve different purposes.
For homes, the most common approach is the Sales Comparison Method. The appraiser compares the property to similar homes recently sold nearby. Adjustments are made for differences in size, condition, and features. This method reflects what buyers are willing to pay in the current market.
Commercial appraisals often use the Income Approach. Here, value is based on how much income the property generates. The appraiser looks at rental income, expenses, and applies a capitalization rate (cap rate) to estimate value. This is key for properties like offices, retail, and apartment buildings.
In some cases, both types may use the Cost Approach, which estimates value by calculating what it would cost to rebuild the property, minus depreciation.
These appraisal valuation methods help answer one core question: how homes vs businesses are valued, and why each approach fits a specific type of property.
Residential and commercial appraisals both set a property's value, but how they do it is completely different:
1. Time to Complete Residential appraisals usually wrap up in about two to four days—that’s the site visit, research, and report. Commercial appraisals take longer—typically two to three weeks—because there’s more digging into leases, financials, and market data.
2. Report Depth A typical home appraisal in Toronto is around 10 to 15 pages. For commercial properties, expect a much heftier report—60 to 100 pages. You’ll get detailed sections on rental income, tenant mixes, operating expenses, zoning rules, vacancy analysis, and market comparisons.
3. Licensing Requirements Residential appraisers carry provincial licenses appropriate for homes and condos. A commercial real estate appraiser needs additional certification and hands-on experience with income-producing buildings—retail, offices, industrial sites, and the like.
4. Fees Expect to pay between CAD 400 and 700 for a residential appraisal. If you're doing a commercial appraisal, rates generally start at CAD 2,000 and rise from there, depending on complexity and property type.
5. Risk and Complexity Homes are evaluated mainly on condition, comparables, and location. Commercial properties require a full analysis—cash flow, lease structure, operating costs, and tenant risk—all need to be examined. That complexity drives both time and cost.
Choosing the right type of appraisal depends on the property and the reason behind the valuation. Here's how to know what fits your situation:
Homebuyers and Homeowners:
If you're buying a house, refinancing your mortgage, or settling an estate, you’ll need a residential appraisal. Lenders require it to confirm the home’s market value.
Investors and Business Owners:
If the property earns income, like a rental building, office, or storefront, you’ll need a commercial appraisal. This helps lenders, investors, and buyers understand its financial performance.
Estate Planners and Legal Professionals;
For tax reporting, inheritance, or legal settlements, the appraisal type depends on the property. A commercial property or mixed-use space requires a business-focused approach, while a home uses a standard valuation.
Lenders:
Banks and credit unions order appraisals to protect their risk. They decide who orders appraisals, but understanding the type needed can prevent delays.
When to get a commercial appraisal comes down to this: if income or investment value is involved, commercial rules apply. For personal use homes, residential standards are enough.
Choosing the right appraisal—residential or commercial—can save time, money, and avoid setbacks.
Each type follows a different process and serves a different purpose. Knowing which one fits your situation helps with financing, legal issues, or investment planning.
Understanding property valuation gives you a clearer picture and stronger footing in any deal. In short, why appraisal type matters comes down to getting the right value, the right way.