An appraisal fee is the cost of an expert to evaluate your home and property to estimate its worth.
What is an appraisal?
A home appraisal is used to verify that the home is worth the money you are borrowing from a lender. It is a required part of the mortgage process.
The lender usually chooses the appraiser or an independent professional who is not emotionally or financially involved in the purchasing deal. Because the lender will never see your home, they do not know the quality or condition of your property. An appraisal can confirm that they will get their money back in this investment.
What is an appraisal fee?
An appraisal fee is a third-party payment where a professional real estate appraiser makes an objective judgment of the home’s market value. In general, lenders order appraisals to confirm that the property’s value is aligned to the loan amount. Typically, if the lender requires the assessment, the buyer will pay for the service.
The appraiser’s fee is included in the closing costs of your loan. You should see this up-front cost on your Loan Estimate. Unfortunately, this is an estimate. The exact amount may change at closing.
How is the appraisal fee calculated?
The price of an appraisal depends on the scope of work and how long the examination takes. For instance, a smaller home will take less time to measure and assess. Additionally, it takes less time to research comparable properties to be used to evaluate the current market value of similar properties.
The appraisal fee varies upon the location and type of property. Appraisers visit the property and go inside the house to see the condition of the interior. They will verify square footage and take note of any renovation work as well as potential health and safety issues.
Therefore, a home appraisal in San Francisco, California can cost about $550 to $575. However, a 5,000 square foot custom waterfront property may run you $1,200 to $1,500.
A few other factors that go into the appraisal fee include, amount of acreage attached to the property and whether the house has extensive damage or upgrades.
How do appraisals affect your home loan?
If the appraisal comes back higher than the purchasing price, you have just gained some home equity!
On the other hand, if the appraisal comes back lower than the purchasing price, mortgage lenders may choose not to fund the purchase. As a result, you have three options, depending on your purchase agreement. First, you can withdraw your offer, if your contract has an appraisal contingency. Second, you can challenge it or get a second opinion by paying for another appraisal. Third, pay the difference between the appraised value and the purchase price if you really love the home. Fourth, ask the seller to finance the difference. Finally, if the seller is willing, you can renegotiate the contract.
Dangers of the Wrong Home Appraiser
Even if you find an appraiser with competitive fees, you want to make sure that they do not cut corners. For example, if the appraiser does not measure the property, but relies only on the figures in public records, the property may then be undervalued and less than the purchase price.
Additionally, appraisers who are not knowledgeable about the market value of comparable homes may not give you an accurate evaluation.
Work with your lender to make sure that the appraiser is well-qualified and look beyond the appraisal fee.