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How Much Should You Save to Cover the Home Appraisal Cost?

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Buying a house is no easy feat, and there are a lot of expenses that you’ll need to think about when creating your budget. One of those expenses is the home appraisal cost. If you plan on purchasing a home with a mortgage, getting an appraisal is not up for debate — if you want a lender to approve your mortgage request, you need to have the property appraised.

Julene Webb, a top real estate agent in Boise City, Idaho, explains the importance of home appraisals: “Appraisers are protecting the bank that they’re working for. They want to be conservative with the estimated property’s value, so the bank doesn’t lend more than they’re comfortable with, based on the appraiser’s value.”

Learn more about the home appraisal process, what to do if the appraiser’s value is below asking price, and all about appraisal alternatives that might cost you less.

Someone signing home appraisal paperwork.
Source: (Jopwell / Pexels)

What does the home appraisal cost include?

The home appraisal is conducted by an unbiased, certified, and licensed home appraiser, and it usually takes place after the home inspection. It’s the appraiser’s job to pinpoint the fair-market value of the home; Mortgage companies require an appraisal so that they’re not lending the buyer more money than the house is worth.

Unlike a home inspection, an appraisal involves only a cursory visual inspection of the home and property. The appraiser will also look at similar homes that have sold within the last three to six months, the current market trends in the area, and various features of the house. They’ll look at the home’s amenities, how the floor plan flows, the overall square footage, the design of the home, and much more. You can take a look at FannieMae’s Uniform Residential Appraisal Report, which almost all appraisers use, to get an idea of what will be on the report.

Along with the items on the form mentioned above, the report is going to include a street map that features the appraised home and the other sales used as comparables, or “comps.” The appraiser will also take photographs of the front, back, and the street view of the house.

Appraisers are required to give a detailed description of the neighborhood, the home’s exterior, as well as the comps. Their report will also include an analysis of the property’s value and a conclusive summary of their findings.

Who will pay the home appraisal cost?

Although mortgage companies require a home appraisal and will often hire an appraiser through a third party to assess a property, it is the buyer who will be footing the bill. If you’re wondering why mortgage companies hire third-party appraisers, it’s because a number of regulations require appraisers to be impartial.

There’s another regulation set in place called the Appraisal Independence Rule (aka “Valuation Independence”), which can be found in the Special Rules for Certain Home Mortgage. This law is designed to eliminate any conflicts of interest between appraiser and lender. This means that a lender or other party cannot bribe, coerce, or promise any kind of compensation or incentives in order to influence an appraiser’s assessment of a home in the lender’s favor — the appraiser is only paid once the job is completed.

A home appraisal can cost you anywhere from $300 to $900 or more. However, home appraisal costs include a few key factors:

  • The home’s square footage (bigger homes will cost more money to appraise)
  • What kind of home it is
  • Location of the property
  • The condition of the home
  • How much time and effort repairs and upgrades could require

The cost of the home appraisal will be disclosed on your Loan Estimate and the Closing Disclosure. This cost may be collected at closing, or a lender may request for the fee to be paid upfront.

Coin stacks holding up a bill folded like a house roof.
Source: (Skitterphoto / Pexels)

What happens if the home is worth less than the listing price?

One would think that the listing price of a home is what the house is worth, right? Unfortunately, not all sellers think that way.

Sometimes homeowners will set the listing price based on emotions and what they believe their home should be worth. If they’re selling a house themselves, commonly called “for-sale-by-owner,” they might hire an appraiser to get an estimate of what their home is worth, but they might just ballpark a figure they think is fair.

If an appraiser comes back with a number that’s lower than the listing price, that’s where negotiations can begin.

Webb explains, “If the appraisal comes back and it’s $10,000 lower than the agreed-upon price, the buyer can reach out to the seller and say, ‘Hey, I want to negotiate.’ A seller may say, ‘I know my current market value is at the agreed-upon price — I’m not willing to reduce it. So, Mr. Buyer, you can move forward and pay the difference, or we can part ways, and I’ll put it back on the market and sell it to somebody else.'”

With that said, Webb points out how uncommon a scenario like that is.

“In our current market here, I rarely see that (appraisals coming below asking price) happening. I haven’t seen it happen in years. Probably five years ago, I had a seller lower the price a tiny bit.”

Of course, you could always get a second opinion, but that’ll require you to pay another $300 to $800. A new appraisal means a new home appraisal cost.

Interesting fact: The research department at the Federal Reserve Bank of Philadelphia released a study that revealed only 10% of appraisals come in below the asking price, and 30% of appraisals are right on the nose.

Be prepared and budget for home appraisal costs

As your closing date gets closer, it’s important to remember to set aside at least $500 to cover home appraisal costs. Sometimes the costs will be included with the closing costs, but don’t be surprised if you have to pay the fee upfront before closing.

Having a home appraisal on a property that you’re interested in buying is a crucial step in the home buying process — especially if you are trying to get approved for a mortgage. Mortgage companies have to make decisions that are in the company’s best interest, so it’s reasonable for them to require an appraisal so they can ensure the price is the same (or close to) a fair-market price. Lenders don’t want to loan people more money than necessary — and frankly, it’s in your best interest, too. No one wants to pay more than they have to!

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