Why Do Home Appraisals Cost So Much?

Typically, the average home appraisal fee is about $400-$500. An appraisal is a necessary part of any real estate transaction and forms a significant part of a mortgage or closing cost. In the case of a mortgage, the appraisal is paid by the borrower. So let’s look at how much appraisals cost and why they cost so much.

How Much Do Home Appraisals Cost?

We have gathered mortgage estimations from major banks and compared their home appraisal fees. We found that the average appraisal fee is $400-$500, an average origination fee of about $600, and an escrow fee of about $300.

However, high-value homes might have higher home appraisal costs. In most cases, the quoted appraisal cost remains fairly consistent across all locations and homes. This would mean that the quote is more of a guideline than a precise number.

Home appraisal costs are probably among the major third-party expenses in mortgage closing costs. However, escrow costs and origination costs are higher than the appraisal cost. The home appraisal fee is intended to protect the lender’s money by making sure the loan does not exceed the price of the mortgaged property.

Although the buyer covers the appraisal cost in most cases, the seller or lender might be willing to share the cost in some cases. In the situation of a mortgage refinance, the borrower is responsible for paying the home appraisal costs.

Factors That Determine The Cost Of Your Home Appraisal

The appraisal cost is estimated by a professional third party. This third part does a property valuation to help the lender determine the amount of money to offer in your mortgage loan. The appraised value will depend on a number of factors such as property condition and the location.

However, the home appraisal costs can significantly vary based on your home’s characteristics.

Factors That Could Rise The Appraisal Fee

  • Higher overall square footage
  • Severe damage and repairs
  • The unique location of the property
  • Shortage of similar properties in the neighborhood
  • Unusual features or improvements

If you are trying to comprehend why your appraisal cost is higher than the average $500, you should first consider confirming your home’s square footage. If it turns out that it’s larger than normal, the appraisal company will charge you for measuring and assessing the total square footage.

Other appraisers will determine the value of your property based on the value of other properties in that neighborhood. When your property is located away from other homes or has very unique features that will make comparative valuation challenging, its appraisal might cost more money and time to complete.

Most people try to avoid overpaying on appraisals, but picking the lowest appraisal fee is not good either. While hiring an appraiser who charges below the average market might save you some bucks, but if they fail to deliver a standard appraisal, you might end up losing thousands of dollars.

It is therefore recommended that you consider the appraisal cost in relation to your home’s value. This helps put everything in a more realistic outlook. Trying to secure some short-term savings with a home appraisal is not worth the risk of receiving an inaccurate property valuation.

Can I Choose The Appraiser Myself?

The federal law prohibits parties involved in real estate transactions from selecting an appraiser directly. Whether you are a seller or buyer, you can’t just request an appraisal from any company you choose.

Appraiser selection is placed on third parties by the lender. The third-party will assign the valuation job to an appraiser in a pre-set rotation. This measure is taken to make sure no one is in control of the chosen appraiser, not even the mortgage lender. This way, the impartiality of the appraised value is guaranteed.

Some people still hire appraisers privately, but appraisals obtained in this manner are not legally accepted for mortgage purposes. Regardless, lenders will accept appraisals obtained in a previous mortgage process that did not result in a loan. However, this previous appraisal should not be older than 120 days.

Reasons For Paying Home Appraisal Costs

Generally, lenders require appraisals as a condition for a mortgage closing. However, they are useful to sellers and buyers as well.

Providing Loan Guarantee

Whenever one takes a mortgage loan, the home will serve as collateral for the said loan. If you default in payment, the lender has the authority to assume possession of your property and sell it to pay off the debt with the sale’s proceeds.

The purpose of an appraisal is to guarantee the lender that the property’s sale price matches the actual value of the property. The lender is assured that if the loanee defaults in loan payment, selling the property will help him recoup the debt owed to him.

The lender can extend a reasonable loan to the buyer when he knows the real value of the property. The lender benefits in that he can recover the debt upon the sale of the property when a loan payment is defaulted, and the property is foreclosed.

An appraisal averts risky circumstances and protects the lender’s assets. When the risk is reduced, the lender can confidently lower interest rates to borrowers.

Ensuring Unbiased Home Valuation Estimates

Lenders do not have the time to go around your neighborhood inspecting houses with you, and they are definitely not real estate experts. Organizations and people lending money may be miles away, and the subsequent loan may be sold off to investors who are thousands of miles away.

Lenders will not come to inspect the condition and quality of the material in your home, but they need to be certain that you can pay their money back. To get a valuation of your home’s worth, The lenders will get appraisals from independent third-party appraisers who are not financially or emotionally invested in the transaction.

They Protect the Buyer from Overpaying

Although it might seem as if the lender is more in need of the appraisal, the home appraisal costs are often covered by the buyer unless he/she negotiates with the seller to cover it. The appraisal cost compensates for the appraiser’s expertise and time used in evaluating the property, assessing its value, and preparing the final report.

While sellers and buyers may not like spending hundreds of dollars on an appraisal, the cost is lower relative to the investment the buyer is making on the home. Getting the property’s appraised value allows the buyer a chance to negotiate a reasonable sale price to avoid overpaying for the home.

Protects The Seller From Closing A Low-Ball Sale

The seller also stands to benefit from an appraisal, even when he/she agrees to pay the appraisal cost. When the seller is aware of the property’s real value, he/she will not agree to a ridiculously low offer from potential buyers. This will help the seller in maximizing the return from the sale and avoid misgivings.

Appraiser Responsibilities

Your home’s appraiser will estimate its worth. For them to arrive at the final valuation, the appraisers have to visit the property, do an evaluation, and prepare detailed documentation. The Appraisal process follows the following stages:

Property-Walk-Through

The appraiser will look at the home’s inside condition and assess the value of all the major features. During this tour, the appraiser might take photos and measurements to verify some characteristics such as square footage, property material, number of rooms, layout, recent remodels, and health and safety measures.

Comparable Review

During this phase, the appraisers will compare your property to other properties in the neighborhood. They do this by evaluating the most recent property sales and all of the characteristics of these properties, such as location, number of rooms, and square footage.

Appraisal Report

The appraiser has to create a detailed appraisal report highlighting the property’s market value relative to comparable properties. All the parties to the transaction are then served with the report within 7 business days. It is advisable that you read through this report and keep a copy.

It is important to mention that the appraisal will only help you understand the market value of the home. For a detailed report on the property’s condition, you might need to hire home inspection services. The appraisers will not highlight the defects, but an inspector will do a more thorough job at that.

Comprehending the Appraisal Value

Lenders rely on appraisals to justify the loans they are lending. The appraisal value should match the market price. The loan-to-value ratio, which is the loan divided by the appraised value, must be below 80% for the lender to be safe.

When the loan-to-ratio goes beyond this cap, the lender will view you as a risky borrower. In such circumstances, you will be required to buy Private Mortgage Insurance.

On the other hand, your loan will not get approval, as is if the appraisal value is too low. For you to buy the property, you will have the options:

  • Make a huge down payment to cover the deficit to meet a satisfactory loan-to-value ratio
  • Look for errors on the appraisal report to dispute the apparent appraisal value
  • Pay for a second appraisal expecting better results.
  • Seeking alternative loan arrangements.

When the appraisal value is higher than the apparent market value of a property, it’s not a problem in most cases, unless you are the seller. For buyers and lenders, a higher value means more equity in the property.

If you need any home appraisal service, don’t hesitate to call our professional appraisers at ExcelAppraise. Contact us today at 1-801-882-2292 and request your home appraisal. 

Leave a Reply

Your email address will not be published.