Whether you are looking to buy or sell a home, you might have to request a home appraisal at some point during the transaction.
Sellers often seek out appraisals before they list so they can set reasonable listing prices and help from their real estate agents. Buyers are often required to get home appraisals to receive a mortgage, so the lender knows the home is fairly priced.
However, these appraisals aren’t always free. If you need to secure one of these reports during the real estate process, make sure you have a line item for them listed in your budget.
Use this guide to learn more about the home appraisal cost and process during real estate transactions.
What is a Home Appraisal?
Real estate is incredibly subjective. A seller will value their property as highly as they can because they want to make the most money from the home sale. A real estate agent can also be biased and overprice a property that they think has potential. As a result, buyers could either overpay for homes or decide against bidding on properties that are pierced too high.
A home appraisal is an unbiased opinion of what a home is worth by a certified party.
A home appraiser will look at similar homes recently sold in the area and compare them to the seller’s home. The appraiser will look at various features of the home, its upkeep, and other factors that can increase or decrease the property’s value. The home appraiser will then provide a report for the property is worth to the buyer or seller – depending on who ordered it.
Appraisals are typically required for buyers by mortgage lenders so they know the house is listed fairly. If a buyer overpays for a home, then they might not be able to sell it at a level to repay the loan. This causes the bank to lose money. Sellers also sometimes seek out appraisals before listing a home to make sure they have a good price for it.
The appraisal process only takes a few hours, and the buyer or seller should receive their appraised value within a few days. The buyer can then send the appraisal to the mortgage lender to assure them that the home is fairly priced.
How Much Does a Home Appraisal Cost?
Most people will pay around $313 – $422 for a home appraisal. The national average falls around $350.
However, multiple factors can influence this cost and drive it up.
The two main elements that will affect your appraisal cost include the type of loan you want and the physical aspects of the house.
Types of Appraisals and Their Costs
Another factor affecting your cost is the type of appraisal you need.
Different loan types have varying appraisal requirements and costs that come with them. Here are a few types of appraisals and how much they can cost.
- Conventional loan appraisal: this is also known as a private appraisal. It applies to anyone seeking a standard loan from a bank or credit union. These usually cost around $350.
- Federal Housing Administration (FHA) appraisal: an FHA loan is a popular option for first-time homeowners. They have fair interest rates and allow for smaller down payments. An FHA appraisal will vary by home size but is usually a few hundred dollars more than a standard one.
- Veterans Affairs (VA) home loan appraisal: these loans are offered to current and former military members. Recent fee increases could cause VA appraisals to fall anywhere from $25 to $400 more than standard options.
- United States Department of Agriculture (USDA) loan appraisal: if you are moving to a rural part of the country, you might qualify for a USDA loan. While these purchases require standard appraisals, they might be more expensive because the appraiser has to evaluate several acres of land.
You don’t have to accept the first home appraisal estimate you receive. You can shop around to multiple appraisers to find one who offers a fair price.
Appraisal Cost and Determining Factors
Most buyers don’t have a choice and must seek out an appraisal to secure a mortgage loan.
However, having a clear picture of your appraisal fees before you agree to this evaluation can prepare you to fully understand your closing costs.
Here are a few factors that can increase or decrease your appraisal cost along with the type of loan that you have.
- Home size. Larger properties will come with higher appraisal costs. This is because it takes longer for the appraiser to inspect and evaluate bigger properties.
- Location. If you live in an area with a higher cost of living (like Los Angeles or Manhattan), the price of hiring an appraiser might be higher.
- Condition. Well-kept homes are easier to evaluate and the appraiser could finish their work within a few hours. Any major problems or structural issues will take longer to review.
- Supply. In hot markets, appraisers are kept busy and have a packed schedule of clients. You might have to pay more to find an appraiser who will work with you.
Additionally, some regional factors affect the appraisal cost. If you need your appraiser to visit your home in the winter (during snowy periods when the property is hard to access), they might charge more.
Many appraisal companies are small businesses that set their own rates, which means they can charge more for inconvenient jobs.
How do Appraisers Determine Home Value?
Once you find a home appraiser that you can trust and who offers fair rates, you can schedule your appraisal.
This professional will look at several different factors to determine the home’s value. Here are a few aspects that contribute to their reports.
- Comparable sales: even before the inspector looks at your home they will consider comparable sales in the area.
- Square footage: the size of your home will determine how much it is worth.
- Bathrooms and bedrooms: a small house with two bathrooms might sell for more than a similarly-sized house with only one.
- Neighborhood: the appraiser will consider where the house is located and any factors that increase or decrease its value. (For example, if the house is within walking distance to a good school or if it is over the nearby airport’s flight path.)
- Home improvements: the appraiser wants to know whether the home is well-maintained and if any improvements have been made. These could include a new roof, updated electrical wiring, or a recently-replaced water heater.
The home appraiser will not look at the interior designs of the home. It doesn’t matter whether you recently painted the house or added unique decorations – especially if you are taking the decor with you when you move.
Instead, the appraiser will note assets that add value to the home for potential buyers. After all of these elements are reviewed, the appraiser will provide an estimate of the value of the home.
Who Pays for the Home Appraisal?
In most cases, the buyer pays for the home appraisal costs. This is because they are required to complete the home appraisal before they will be approved for a loan.
Even if the buyer doesn’t need to get a home appraisal (typically because they are a cash buyer), they might pay to have one done anyway. The buyer can either pay the home appraiser after their report is complete or build this expense into their closing costs.
A seller will pay for the appraisal if they are estimating the value of their home before listing it. This is an optional choice for a seller who wants objective insights into their property and isn’t sure about trusting their real estate agent.
Understanding the Home Appraisal Report
Once the home appraisal is complete, your real estate agent can help you read through the report. While you might be tempted to focus on the final appraisal value, it helps to understand how the appraiser reached that number. Here are a few aspects of that report to review.
- Property Description: make sure the details of the house are accurate, including the address, square footage, number of bathrooms, and other key elements.
- Comparable Sales: see which homes the inspector used to compare against yours. Differences in the neighborhood and square footage of comparable homes can affect the home’s value.
- Comments: the home appraiser should provide a description of how they view the home and notable comments that affect the value of the property. This explains why they appraised the home as they did.
- A Value Option: this is the final number that highlights the appraised value of the home. You can see if this falls in line with the asking price or your expectations.
It is very important that you read each detail of the report. If there is a mistake, it could affect the home’s perceived value. If the square footage is incorrect or a bathroom is missing, you need to write a letter to the appraiser, your mortgage lender, and your real estate agent to address the issue. The appraiser should make the correction with the right valuation.
If you feel like the appraiser was biased in some way, seek out another appraisal company to work with. While you will have to pay for another valuation and this could slow the closing process, you need a clear value of what the home is worth.
The Impact of a Low Appraisal
In a perfect world, the appraisal would come back close to the purchase price. The seller would feel happy that they are getting a good price for their home and the buyer and lender would be satisfied that they aren’t overcharged. However, this isn’t always the case. Occasionally, the appraisal comes in much lower than the listing price, which can disrupt the entire home-buying process.
In the event of a low appraisal, a mortgage lender won’t approve a loan. They don’t want the buyer to overpay for a house to the point where they cannot resell the property for at least the same amount. If the buyer can’t resell the house, the bank won’t get its money back and could lose money on the loan.
Without a loan, the buyer has to act. First, they can renegotiate the home sale based on the appraisal in order to lower the price. If the seller agrees to a lower price, the purchase process can move forward. However, if the seller refuses to agree to a lower price that is in line with the appraised value, the buyer will have to walk away from the deal.
It’s in the best interest of the seller to renegotiate. If the buyer walks away, the seller has to remarket the house and find a new buyer. If the new buyer needs a mortgage loan, they will get an appraisal and discover that the house is overpriced. Even cash buyers often seek out appraisals to make sure they are making a safe deal.
It’s frustrating for the buyer to have to leave a house they want and start the search over. However, this is a safer option and will make it easier to get a loan in the long run.
Find a Real Estate Agent to Help With the Appraisal Process
A home appraisal is a valuable tool for setting a listing price as a seller and for seeking mortgage approval as a buyer. Most real estate transactions involve an appraisal at some point. If you are just getting started with the buying and selling process, turn to the professionals at FastExpert. We can help you find a quality real estate agent who can recommend appraisers and help you understand your appraisal report.
You don’t have to be an expert in the home-buying process to find a house you love. Instead, hire a Realtor who can help you learn about the home appraisal cost and other factors related to buying a property. With an agent you can trust, you can feel confident whether this is your first or fifth time buying a home. Learn more about FastExpert today.
Frequently Asked Questions
Who typically pays for a home appraisal?
If the lender requires a home appraisal to approve a mortgage loan, the buyer will be responsible for covering the fees. The appraisal fees are usually then added to other closing costs for the buyer. In some cases, the seller might pay for an appraisal before listing a property to ensure they are listing at a fair price.
Can you negotiate appraisal fees?
In some cases, you might be able to negotiate appraisal fees. You can shop around to different home appraisers and collect estimates to see how they differ. In some markets, the appraisers might not be willing to negotiate because they have enough clients who are happy with their rates.
What happens if the appraisal value is lower than the asking price?
If the appraised value is too low, then the mortgage lender will not approve the loan. The buyer will either negotiate a price based on the home appraisal or they will walk away from the deal. The seller can either accept the lower offer or try to find a seller who agrees to their original asking price.
Can I use a previous appraisal for a new mortgage?
In most cases, you cannot use an old appraisal for a new mortgage. This is because the real estate market changes so often that even an appraisal that is only 90 days old could be too outdated to be relevant. The home appraisal cost might be expensive, but it is worth the price if you want to secure a home that you love.
How long is a home appraisal good for?
Most appraisals are only good for 90 days, but some are valid for up to six months. In a few cases (like FHA and VA loans), home appraisals are only good for 30 days. Make sure you understand the terms of the appraisal when you agree to it.