How much does a home appraisal cost?
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Getting an appraisal on a home is like getting a price check at the grocery counter. Except that a house costs a lot more than a jar of pickles.
This is why most lenders will require an appraisal during the home buying process. But even if it’s not necessary, it’s probably worth taking an assessment.
Before you begin the process of buying, selling, or refinancing a home, it’s essential to understand how appraisal works and what it costs.
What is a home appraisal?
An appraisal is an appraisal of the value of a home given its condition and the current real estate market. In most cases, mortgage lenders require an appraisal to make sure the home is really worth the money they are loaning someone.
“The appraisal is a way for them to justify the loan they are going to give you,” said Ryan fitzgerald, real estate agent and owner of Raleigh Realty in North Carolina. “The bank invests to lend you money and it has to protect its investment with this valuation.”
But it’s not just the bank that a valuation helps protect, according to Carrie’s powers, loan originator and senior branch manager at Silverton Mortgage in Atlanta.
“If, for example, you’re buying a house for $ 200,000, you want to make sure that your purchase is worth it,” Powers says. “That’s what the evaluation does. This confirms that you are buying it at a reasonable price. “
In other words, an appraisal can help make sure the buyer isn’t paying too much for a home.
When an appraiser determines the value of a home, here are the most common factors:
- Square feet
- External and internal condition
- Home Improvements
- Recent comparable home sales
When determining a home’s value, an appraiser compares it to recent homes sold in the area. Comparable sales must be from the same neighborhood and have similar characteristics such as size, number of pieces, style and condition, depending on Fannie Mae. It is ultimately the evaluators who choose the comparable sales to consider.
As a seller, if you think your home has risen in value, it may be worth paying an appraisal before you put your home up for sale. This way you can get a better idea of the selling price of your home.
How much does a home appraisal cost?
The average cost of a home appraisal is $ 340, with most borrowers paying between $ 312 and $ 407, HomeAdvisor reports. But the scope can be much wider. Appraisals for single-family homes can range from $ 300 to $ 700, says Charles Gallagher, real estate attorney and managing partner of the Florida-based law firm Gallagher & Associates.
The cost of an appraisal depends on several factors, including the location, size and condition of the home. Appraisal prices generally increase with the size of the home. They tend to be more expensive in urban areas, but you might also be paying a premium if your home is in a hard-to-reach location.
Who pays for the home appraisal?
In most cases, the bank requires an appraisal as part of the mortgage process. Accordingly, the buyer is responsible for this cost, as they are for other closing costs.
The buyer “will bear this expense as a line item at close,” said Gallagher. “More than likely, the bank chooses this appraiser, not you.”
Although you can’t choose your own reviewer, you can verify their credentials through this government registry.
While the buyer is generally required to pay an appraisal as part of the mortgage process, sometimes it can be in the seller’s best interest to pay an appraisal before putting their home on the market.
“It’s almost worth the salesperson to buy an appraisal up front to make sure they don’t shoot themselves in the foot,” says Fitzgerald. For example, Fitzgerald saw a higher appraisal return than what a house was sold for. When that happens, the seller could have paid an appraisal before listing their home and potentially gain more from the sale, Fitzgerald says.
What if your home is valued at less than the purchase price?
Home buyers may experience a problem if the appraised value of the home turns out to be less than the accepted offer price. Lenders use the estimated value to determine your loan-to-value ratio (LTV), and they are unlikely to fund more than that.
If this happens, there are four options:
- The appraisal could be challenged and the appraiser could agree to reconsider the home’s value based on comparable additional sales.
- The buyer and the seller can renegotiate to lower the selling price of the house.
- The buyer can find the difference between the appraisal value and the purchase price.
- If the buyer has a assessment contingency, they can waive the agreement.
“Buyers and sellers should negotiate at this point,” says Fitzgerald. “More often than not, buyers are going to have to find more money because there are 30 other people who want the house.”
It’s not always possible to tell the difference for a first-time buyer, says Gallagher.
If the appraiser does not reconsider the value of the home and the parties cannot come to a new agreement, the last resort would be to waive the contract. Most contracts have a assessment contingency which gives buyers the right to opt out if the home is not valued as expected.
“You can terminate the contract and the parties can fulfill this obligation. They would have the right to get their serious money back and go, ”says Gallagher.
Do you need an appraisal for refinancing?
When you refinance a mortgage, you take out a brand new home loan to replace the existing one. In many ways, the process of refinancing a mortgage is quite similar to the original mortgage. Depending on the situation, this may or may not include a home appraisal.
In many cases, homeowners might be eligible for a waiver of assessment. These waivers, granted by Fannie Mae and Freddie Mac, allow certain mortgages, including refinancing loans, to skip an appraisal. To qualify for an appraisal exemption, the property must generally be a single-family home that meets certain LTV requirements. You can talk to your lender to find out if you might qualify.
It’s not just conventional mortgage borrowers who can avoid appraisal. Government guaranteed loan products also come with a non-appraised refinancing process.
“There are government-insured loans called streamline refinancing where you just lower your interest rate, ”says Powers. “In these cases, you don’t always necessarily need an assessment.”
In some situations, an assessment is more likely to be required. Some borrowers make a cash refinancing when they borrow against some of the equity they have built up in the house. Because lenders will only let borrowers take an amount of equity, these refinance loans usually require appraisal.
Some might want an appraisal if the value of their home has increased significantly. An appraisal could help a homeowner lower their interest rate, as increasing the value of the home would likely mean a lower LTV.
Another situation in which borrowers might want an appraisal is if they are currently paying for private mortgage insurance (PMI) and have exceeded 20% of their home equity.
“Let’s say you currently have mortgage insurance, and when you bought the house last year, you lowered the minimum,” Powers said. Since you now have 20% equity, you may want to refinance to bring down the PMI. But if the rates haven’t come down, there’s no point in refinancing. You can ask your lender to drop mortgage insurance based only on the appraisal and 20% principal, Powers says.