Why Pay Appraisal Fees When Buying or Selling?

Why Pay Appraisal Fees When Buying or Selling?

A house appraisal charge covers the expense of hiring a qualified appraiser to inspect the property and determine its market value.

This and other costs related to house purchases should be listed on your loan estimate form. As of 2022, the cost of an appraisal for a single-family home is typically between $300 and $450. The appraiser, the location of the home, and the complexity of the appraisal all affect prices.

A home appraisal typically takes place before the transaction is finalized and after the seller accepts an offer on the home. It frequently happens after an inspection; if there’s a problem with the house, there’s no need to spend money on an appraisal. The buyer typically pays the appraisal charge at closing. Sometimes, they might be successful in getting the seller to cover the cost.

You could question why you need to have an appraisal and pay the charge if you’re a buyer or seller facing this expense. To help you budget and plan for your next home purchase or sale, find out more about the homebuying process.

Main points

  • The cost of having an appraiser determine the market value of a residence is covered by the appraisal fee.
  • Unless the buyer and seller agree to a different arrangement, the fee is typically paid by the buyer.
  • Although the lender is typically the one who requests an appraisal, buyers and sellers also benefit from the procedure.
  • An appraisal fee is a relatively low investment in comparison to a home’s overall value.
  • Four Justifications for Fees and Appraisals
  • The need for assessments is multifaceted. They are made with everyone engaged in mind.

They provide a loan guarantee to lenders.

The property is used as collateral when you take out a mortgage loan. The lender may seize the property if you stop making payments. They might decide to sell it and pay off your loan with the earnings.

Lenders can be convinced by appraisals that the sale price of a home is reasonable given its value. This gives the lender assurance that the loan’s collateral value is high enough to cover its losses in the case of failure. Lenders can provide buyers a loan for a reasonable amount if they have knowledge of the projected value of the house. In the event that the buyer defaults and the home is foreclosed upon, the lender profits from being able to recoup the money from the sale of the property.

Let’s say a lender gave a buyer a $400,000 loan for a house with a $200,000 market value. Then, the buyer stopped making loan payments. When selling the house in foreclosure, the lender would have a tough time recouping the loan. Appraisals aid in averting this dangerous situation and safeguarding the assets of the lender.

Lenders can (ideally) offer borrowers lower rates when they lower their risk.

Lenders frequently demand appraisals as a requirement for closing, but lenders, buyers, and sellers can all benefit from them.

They guarantee impartial home estimates.

Lenders don’t accompany you on neighborhood tours or house viewings. They might not have in-depth knowledge of the local real estate market. It’s possible that the individuals and institutions lending you money are thousands of kilometers away. Your loan could be offered for sale to international investors. They will never physically check the quality of your home’s construction, and they have no guarantee that they will get their money back. Lenders obtain an appraisal from an unbiased expert who is not emotionally or financially invested in the transaction to determine the value of your home.

They can prevent buyers from paying too much.

Despite the fact that a lender requires an appraisal, the buyer is still responsible for the appraisal fee unless the seller agrees to cover it. The appraiser’s time and expertise spent assessing and documenting the property, determining its worth, and creating an assessment report are included in the appraisal fee.

Even though it may not be fun for buyers or sellers to spend a few hundred dollars on an appraisal, the cost is negligible in comparison to purchasing a home. Obtaining an estimated house value enables the buyer to haggle for a reasonable sale price. They won’t have to spend a lot more money than the house is actually worth.

 They prevent vendors from doing underhanded deals.

Even if they agree to pay the cost, sellers stand to benefit from appraisals. Knowing the fair market value of their property helps sellers reject bids that are too low. They can thereby boost their profits from the sales of the homes. Additionally, it aids in preventing the seller’s regret.

The Work of an Appraiser

A home’s value is estimated by an appraiser. They must go to the property, assess it, and record it in order to determine that figure. Typically, a series of steps are used to accomplish it. 

Real Estate Walk-Through

Most of the time, appraisers enter the home to inspect its interior features and state. Appraisers will measure and photograph the home over the course of a few hours to confirm its dimensions and other features. These include the design, the number of rooms, the materials used in the building, health and safety concerns, and recent renovations.

Comparative Analysis

The home’s appraisal also takes into account comparable nearby residences. They accomplish this by examining recent transactions and the details of those homes, such as square footage, the quantity of bedrooms and bathrooms, and the neighborhood.

Evaluation Report

An appraiser visits properties and then writes a report outlining the subject property. It comprises the market value of comparable properties as well as their appraised value. A copy of that report will be sent to you, typically within seven business days. Read it carefully, and then make a copy for your records.

Only you and your lender can benefit from an appraisal in determining a property’s market worth. You’ll need a house inspection, which is solely for your advantage, to learn additional information about the state of a property. You shouldn’t expect an appraiser to point out every flaw or to enter a crawlspace to look for problems. A more in-depth examination of the property should be done by an inspector.

What Is the Meaning of Appraisal Value?

The value of the appraisal must be high enough to support the loan you are applying for. In many instances, that value must coincide with the contract’s stated purchase price.

Once more, lenders must be assured that the home’s value will allow them to recoup their investment. To be on the safe side, a loan-to-value (LTV) ratio should be lower than 80%. If it is greater, you might be considered a risky borrower, in which case you might be required to pay private mortgage insurance (PMI).

The loan balance divided by the appraised value is known as the LTV ratio.

Your loan might not be authorized as-is if the appraisal is too low. You have a few choices for how to purchase that house in those circumstances:

  • Check the appraisal report for any mistakes before contesting the value.
  • Look for a different credit arrangement, like a smaller loan.
  • Don’t expect appraisers to “help” loans go through; instead, get another appraisal done and hope for a higher estimate.
  • To make up the gap, increase the down payment. You might be able to improve your LTV ratio as a result.
  • Do your best to prevent unnecessary expenditure, as PMI can cost you tens of thousands of dollars over the course of the loan.

What happens if a home appraises for more money than it cost to buy it? Typically, that doesn’t pose a problem (unless you’re the seller and your asking price is too low). Any increase in value translates into more equity in your house. Appraisals, however, frequently come in close to the agreed-upon purchase price.

How to Select a Valuer

Your lender will often engage an appraiser for your loan. Therefore, a portion of the expenses will depend on the lender your lender chooses. There’s a chance that you won’t be able to compare prices.

Some appraisers were suspected of inflating home prices prior to the mortgage crisis in order to speed up loan approval. This was occasionally carried out at the lenders’ own request. There may have been a motivation for mortgage brokers and real estate agents to select appraisers who provided the desired results—but perhaps not always the most accurate results. Since that time, appraisers have become less eager to “assist” deals in closing.

You can look up the credentials of the person doing the appraisal on your residence. Search the National Registry of Appraisers by location or license number. To make sure you will work with a respected appraiser, bring up this concern with your lender if the search turns up any pending investigations for the appraiser.

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