What Is the Cost of Home Appraisal and What Should I Know?

According to U.S. real estate industry figures, the average cost for a home appraisal is $331, with an average range of between $288 and $374. The low end of that rage is $250 for a home appraisal and the high end is $450.

Home appraisal costs depend on a variety of factors, including the size of the home, the state where the residence is located, and problematic issues in doing a home appraisal that might keep the appraiser on the property longer than expected.

Geography may have an impact on home appraisal cost for sensible reasons. Appraising a simple one-story home in a low-cost rural area will likely cost less than conducting a home appraisal on a 12-room luxury property in Manhattan or San Francisco. That's because the mortgage loan will likely be higher on the urban property and the mortgage lender has more risk on the table in approving that loan over the rural home loan.

What is a Home Appraisal?

You can't buy or sell a home without a home appraisal if the buyer is taking out a mortgage, as mortgage lenders often make decisions on whether to grant financing based on the outcome of a home appraisal.

By definition, a home appraisal is an objective estimate of a home's market value, based on a thorough examination of the home and property. Aside from using a home appraisal to weigh the value of a residence, mortgage lenders also use an appraisal to make sure they aren't lending the buyer more money than the home is worth.

A home appraisal generally covers everything possible on a property, but prioritizes the following checklist items:

  • The current condition of the property, along with the size of the property.
  • The location of the property (including the neighborhood where its located.)
  • The condition of the inside of the home, including windows, roof, doors, kitchen, bathrooms, plumbing, bathroom and garage. Total square footage and layout are big priorities, too.
  • Any upgrades done to a home, including room additions, patios and decks, appliances, drywall, flooring, driveway, heating and air conditioning units and septic systems.
  • Sales comparison. A home appraiser knows - or should know - the price of comparable homes sold in the neighborhood recently. That knowledge gives the appraiser a baseline sales figure to use as guidance while appraising the home.

Who Handles the Home Appraisal?

Home appraisals are conducted by licensed professionals who are experts at home and property assessment (many come from the home building, contracting and home maintenance, and landscaping industries.) Professional home appraisal licensing is handled by the state the property is located. Applicants need to complete 75 hours of coursework focusing on basic home appraisal principles and processes, and then, in some states, pass a home appraisal exam.

When on the job, licensed home appraisers must maintain complete objectivity on the home they're appraising, and be ready to stand behind any finding they make when examining the home, as their findings can heavily influence a home's value on the open market.

Expect your home appraiser to use a standard home appraisement form when viewing your home (usually Fannie Mae's Uniform Residential Appraisal Report.)

Who Pays for a Home Appraisal?

Typically, the buyer pays for a home appraisal. The buyer can pay up front at the time of the appraisal or the appraiser's fee can be included in closing costs.

Yet while the buyer usually pays for the appraisal, he or she doesn't order the appraisal. That's done by the mortgage lender, who is seeking an accurate assessment of the home's value because he has skin in the game. The lender has to feel confident in the condition of a home and property it's lending the buyer money to purchase. After all, no lender wants to grant a $250,000 mortgage loan on a home that's worth only $225,000.

What's the Difference Between a Home Appraisal and a Home Inspection?

A home appraisal isn't the same as a home inspection - there are significant differences.

By and large, the biggest difference is who the process seeks to protect.

Home appraisal

In a home appraisal, the process protects the mortgage lender financing the purchase of the home. That's why an appraiser focuses on external issues like the neighborhood, comparable sales figures, and the home and property's square footage.

Home inspection

In a home inspection, the objective is to protect for the buyer, who usually pays the few hundred dollars it takes to conduct a home inspection. Thus, the priority for a home inspection professional is to look internally or in the "guts" of the home, and examine key areas like the roof (for any leaks), the attic and walls (for any signs of mold) and for major electrical or structural issues that could be a safety concern for residents and that could reduce the value of the home.

What if Your Home Appraisal is Lower Than the Sale Price?

It's actually not uncommon for a home appraisal to come in with a figure that's lower than the sales price. There's no absolute lock that the appraisal has to match the home sales figure, so don't be surprised when there is a disparity between the two prices.

If that happens don't panic - you do have options. If you're buying a home, and the appraisal comes in low, there are several tactics buyers usually take to keep the deal alive:

Asking the seller to match the appraisal price

Assuming the buyer is still interested in buying the home and is contractually able to back out if the appraisal is low, the buyer can ask the seller if he or she will lower the sales price to match the sales price. It can't hurt to ask, and a motivated seller may approve that request. The lender would also need to be involved in any price cut due to a low home appraisal.

Offering to increase home purchase down payment

To keep the deal active, a buyer might offer to hike his down payment to the mortgage lender in a low home appraisal scenario. The lower appraisal may well jeopardize the buyer's home loan. If the buyer can jack up his down payment in order to reduce the amount he will borrow from the lender, he can still be approved for the mortgage without digging into his pockets for mortgage insurance (PMI)-- a monthly fee borrowers must pay when their down payment is less than 20% of the purchase price. This is especially helpful if the owner agrees to cut the sales price. The buyer can use that price difference to boost his down payment, thereby reducing monthly principal, long-term interest and PMI.

Agree to pay mortgage insurance

To cover a short appraisal, a buyer can also maintain her current home down payment, but agree to pay PMI -- the mortgage insurance which kicks in when the buyer needs to finance more than 80% of her home purchase. Those taking this route can expect private mortgage insurance to cost between 0.5%-to-1.0% of the total loan amount. That means that on a $100,000 loan, the borrower could be spending up to $1,000 extra annually on home mortgage costs, adding over $80 to her monthly mortgage bill.

Dispute the appraisal outcome

Another option is that either the seller or the buyer can ask to dispute a home appraisal figure. After all, home appraisals are subjective and various factors - which may be calculated incorrectly or omitted entirely - can result in a lowball appraisal. Working with her real estate agent, a buyer could contact the lender and provide her own data that may correct the low appraisal figure. If the lender approves a dispute application, it's turned over to the lender's own mortgage appraisal unit for further review -- and hopefully a decision that supports the sale price.

No doubt, a home appraisal is a critical step in a home changing hands between buyer and seller.

Be knowledgeable and realistic heading into the process, and if it any time you're in over your head, turn to a licensed real estate agent, mortgage broker or real estate attorney to get ahead of any problems.

This article does not constitute legal advice. The author is an independent contributor, not an attorney. Please consult a licensed real estate salesperson or real estate attorney for guidance on buying or selling a home.

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