The cost of a home appraisal is often treated as a closing cost that's paid in advance by the buyer when the appraisal is done. The appraisal cost can range from $350 to $500 for a single-family home, but fees can vary depending on the home's location and the complexity of the appraisal. The cost can also be driven by market demand and the appraiser's experience.
What Is an Appraisal?
An appraisal is an opinion on the value of a property, but it's not as random as that might sound. It's based on certain points that may be determined by state law. The appraiser should state in the report the process that was used to decide the home's worth.
Appraisers must be licensed or certified by the state in which they work. Each state has an appraisal board, and the person must pass an exam given by the board to receive a license. Other rules vary by state.
Appraisals don't guarantee value. They're only an opinion of value by one person who follows standard rules.
Different Types of Appraisals
Conventional, FHA, and VA appraisals don't cost the same. There's often at least a $50 difference between a conventional and FHA appraisal. FHA appraisals tend to be more expensive.
The higher cost for FHA is due in part to the added rules and guidelines for an FHA loan. An FHA appraisal might require more "loan conditions," which are repair requirements that must be made before the loan can be funded, because FHA loans carry stricter repair rules than other loans.
You might see some homes with deferred maintenance issues listed as "conventional loan only," because the seller knows that it won't meet FHA rules.
Saving on a Home Appraisal
The best time to bring up the cost of an appraisal is when you're ready to choose a mortgage broker. Most mortgage loans cost about the same, but you should still compare to be sure you're paying a fair amount. There should be very little difference between interest rates and points between lenders.
Lenders may agree to pay for an appraisal as a way to win a buyer's business. It doesn't hurt to ask.
When Homes Appraise at Sales Price
Appraisers aren't immune to the fact that both the buyer and the seller are counting on a home to appraise at the contract value that both parties agreed to. An appraiser can't base an opinion on the sales price, but don't make the mistake of thinking that they aren't aware of the issue.
Appraisers receive a copy of the purchase offer. They try to find comparable sales that will meet the appraised value.
At times, an appraiser won't assign a higher value to the home if it is worth more than the sales price. The home only has to be worth at least the sales price, and the lender might take the position that the appraisal is faulty, and refuse to make the loan if the value comes in a lot higher.
What to Do if You Don't Agree
An appraisal isn't "wrong" simply because it comes in at a higher or lower value than you thought it would, but you do have options if a value comes in that seems much higher or lower than the contract price.
Most lenders have a system in place called a "reconsideration of value," which means the appraisal will be reviewed to make sure it was done correctly. You can also file a complaint with the state appraisal board, but you might want to pay for a second one first to be sure that the first price was really off.
An appraisal in California involved an FHA loan. FHA appraisals are given a case number, so the next buyer will receive the same one if the initial contract falls through. The appraiser called the lender to warn that the appraisal would be $100,000 less the sales price and asked whether the lender wanted them to complete the job.
The lender chose to try a new appraiser, but the second one came up at almost the same value. It was still $95,000 less. While this scenario is not unheard of, it's always possible that a second appraiser will use different comparable sales and produce a higher value.