Appraisals are an important part of the property-buying process. For buyers, they ensure you're making a smart investment of your money, and for mortgage lenders, they protect against risk.
But how much does a home appraisal cost? And will you be on the hook for those expenses on your next purchase? Here's what you need to know.
Why do you need a home appraisal?
Home appraisals are typically required by mortgage lenders. But even if you aren't financing your property, you still might want one just to be safe.
An appraisal is a professional assessment of a property's fair market value, given its age, condition, square footage, features, and current market conditions, among other factors. The appraiser will evaluate your property, do a comparative market analysis with other similar homes in the area, and determine how much the property is worth.
In a nutshell: An appraisal will tell you if a home is actually worth what you've offered to pay for it.
What does the appraised value mean?
If the home's appraised value comes in above (or at) what you offered for it, then you're golden. You're making a smart decision and a good investment of your money.
If the appraisal comes in low? Then you have a problem. If you're paying cash for the home, you may want to back out of the deal (if you have an appraisal contingency in place) or renegotiate with the seller for a lower sale price.
If you're using a mortgage lender to finance the property, you'll have a few options with a low appraisal:
- Pay the difference between your offer price and the appraised property value. Your lender will only loan you up to the appraised amount.
- Renegotiate with the seller. There's a chance they may let you only pay the appraised value, or you might be able to negotiate a number somewhere in the middle.
- Back out of the transaction. If you have a property appraisal contingency in your contract, you should be able to back out of the sale altogether.
If you're not sure what the best decision is for your specific scenario, make sure to talk to a real estate agent in your area. They can advise you on the best steps moving forward.
How much does a home appraisal cost?
The average real estate appraisal costs between $300 and $450 nationally, though costs can vary by region, size of the property, and other factors.
Here are just a few of the factors you can expect to impact your appraisal's cost:
- The property's age and condition.
- The property's size.
- The features/amenities on the property.
- Labor costs in your area.
- Damage to the property.
- Seasonal conditions.
- How hard it is for the home appraiser to access the property.
- Any improvements or renovations done to the property.
- The density of the market (and the amount of comparable sale data there is to compare the home to).
Generally, anything that makes the appraisal take longer or more complicated will mean a higher cost. There are limits, of course, and according to the Dodd-Frank Act, the fees must be considered "customary and reasonable" for your specific market.
Who covers the cost of a house appraisal?
In most cases, the buyer will pay for the home appraisal fee -- either upfront or as part of their closing costs. There are scenarios when a seller may pay the fee, but it's rare. This might only happen if you're in a buyer's market and the seller needs to throw in extra costs to make the deal more attractive.
Is a home appraisal the same as a home inspection?
No. An appraisal helps determine a home's value while a home inspection determines the home's condition. You (and your mortgage lender) will use the appraisal report to assess whether you've offered an appropriate sale price. You'll use the inspection report to determine whether the home needs repairs.
Appraisals and inspections are also conducted by different service providers. A licensed appraiser and a licensed home inspector are two wholly separate professionals.
The bottom line
If you're buying a property, you'll want an appraisal. Though it does add a few hundred dollars to your final bill, it can help ensure you're making a smart investment of your money and that you're offering the right purchase price for the home.
If the appraisal value says otherwise, talk to your agent about options. If you've included an appraisal contingency, you should be able to back out of the deal.
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