What Is A Home Appraisal, And How Much Does It Cost?
- Juan Pedrosa
- Mar 19, 2022
- 5 min read
Updated: Mar 19, 2022
Whether you’re looking to buy a house, sell or refinance, a home appraisal is likely going to be an important part of the process. After all, you have to know how much a house is worth before you can make any meaningful financial moves on it.
What Is A Home Appraisal?
A home appraisal is a process through which a real estate appraiser determines the fair market value of a home. It can assure you and your lender that the price you’ve agreed to pay for a home is fair. Appraisals are also often used to determine property taxes, which makes them a requirement in most counties.
If you need a mortgage to buy a home, your real estate agent will suggest that you include an appraisal contingency in the sales contract. The appraisal contingency lets you walk away from a home purchase if the appraisal comes in too low to justify the agreed-upon purchase price.
While necessary in most cases, they aren’t required. You may want to skip the contingency if you’re buying a home with cash or if you’re in a seller’s market. However, it makes a lot of sense if you’re buying your first home or if you’re on a tight budget.
How Much Does A Home Appraisal Cost (And Who Pays)?
As a general rule, most single-family home appraisals cost $300 – $400, while multifamily units typically cost upward of $600.
Even though most lenders require an appraisal as a condition of a loan closing, the buyer pays for the appraisal unless they negotiate for the seller to pay instead. The amount that a buyer pays for an appraisal depends on a number of factors, including the size of the home, the home’s location and the amount of property research that the appraiser ends up doing before they issue a final value report on the appraised value.
Keep in mind that if the property is on a very large plot of land, the appraisal cost will be more because the appraiser often surveys the boundary lines of the property to make sure that the listed square acreage is correct.
Buyers can also expect to pay a higher appraisal fee in a very rural area simply because there are fewer appraisers working in these areas. This might mean a longer wait for an appraisal as well. If you have any questions about how much your appraisal will cost, consult with your mortgage lender.
Home Appraisal Vs. Home Inspection
An appraisal differs from a home inspection. A home inspection is a much more in-depth process. In a home inspection, an inspector specifically looks for problems in the home and determines whether certain areas need repairs. An inspector may test outlets, run the home’s furnace to see if it can hold a stable temperature and look at the roof to see if it’s been properly installed.
A home appraiser will take visible defects into account, such as a roof that’s caved in or the fact that the home doesn’t have a working plumbing system, but appraisers do not search for specific problems. Instead, the appraiser looks for an overall value to assign to the property.
What Is An Appraisal Contingency?
An appraisal contingency can help you protect yourself financially when you make an offer on a home.
We’ll teach you a little bit about the importance of getting an appraisal contingency when buying a home. We’ll also go over different types of contingencies and whether you may or may not need a particular type.
The Appraisal Contingency Explained
A contingency is a condition that needs to be met before an offer can proceed. In other words, it’s kind of like a safety net. Therefore, an appraisal contingency means that if your home doesn’t appraise for the amount you’ve agreed to pay, you can walk away from the deal with your deposit. An appraisal determines the fair market value of the home you’d like to buy.
Your real estate agent might recommend that you include one or more contingencies when you make an offer on a home. Contingencies aren’t individual contracts. Instead, they’re included alongside your offer. Like your offer, the seller has the option of accepting or rejecting them.
How Does An Appraisal Contingency Work?
Your lender orders a home appraisal during your loan application and a licensed appraiser takes a look at the house you want to buy, as well as the area it’s in. The appraiser then gives you a professional opinion of how much the home is worth. Lenders require appraisals because they ensure that the home isn’t selling for more than it’s worth.
If the appraisal comes back lower than your offer, you’ll either want to ask the seller to lower the sale price, come up with the cash to cover the difference between the appraisal and your offer, or back out of the sale. You’ll have leverage in negotiating a lower price if you have an appraisal contingency. Ultimately, you may have to walk away from the sale if you and the seller can’t reach an agreement. But, without an appraisal contingency, the option to walk away might not be available to you.
While an appraisal contingency is not required, waiving the clause can make things extremely difficult for you if the home appraisal is low. You could be at risk of breaking the contract and losing your deposit, at the very least.
What Happens If The House Appraises For Less Than The Offer?
When your appraisal comes back for more than you offered on the home, your sale moves forward. But what happens if the appraisal comes in lower than your offer? You and the seller have a few options under these circumstances.
First, if you believe that the appraisal is wrong, you may petition for a second appraisal. Think of a second appraisal as a “second opinion” on what the home is worth. You need to have a reason why you think the first appraisal was wrong in order to get a second appraisal. Recent home sale data and documentation of improvements the owner has made may help improve your chances of getting a better second appraisal.
Was your second appraisal still too low? Some of your options include:
Making a larger down payment: If you can make up the difference between the appraised value and the sale price, your lender may still offer you a loan.
Asking the seller to lower the sale price: Your lender will finance the loan if you can negotiate with the seller to lower the sale price to meet the appraised value of the property.
Any combination of the two options above: You might want to meet in the middle of these two solutions if you really love the home. For example, if there’s a $20,000 difference in appraised value and your offer, you might agree to an increase of $10,000 in price and your seller might offer to reduce the sale price by $10,000.
Comments