If you’re in the market to buy, sell, or refinance a home, a home appraisal may not be on the top of your list of things to think about — but maybe it should be. Why? Whether you are buying a home, refinancing your home, or selling your home to anyone other than a cash buyer, a home appraisal is a key piece of the transaction.
It’s important that you understand how the home appraisal process works and h an appraisal is used to help determine the home’s value.
The purpose of a home appraisal is to protect the buyer and lender from paying too much for a home and to give an unbiased estimated value of a home. The appraisal uses a physical inspection of the property and a comparison of recently sold homes in the nearby area to estimate the value of a home. The findings from the home appraisal help to directly determine the amount that a lender will let the buyer borrow for a property.
How is a Home Appraisal Different from a Home Inspection?
While both the inspection and appraisal happen before the sale or purchase of a home, there are a number of marked differences between the two. For instance, while a home appraisal is typically required by a lender, a home inspection is not required (although it is strongly recommended). As such, your lender will often schedule the appraisal on behalf of the buyer, while it is up to the buyer to find his or her own inspector and schedule an inspection.
But perhaps the biggest difference between the two is their very purpose. An appraisal is used to help determine the value of a property, while an inspection is used to determine its true condition and to help uncover any potential underlying issues. Because of these different purposes, the processes are different, as well. A home inspection will dive more deeply into the functional parts of the home, such as the plumbing, foundation, and electrical system. The inspector will use specialized equipment to help find any potential problems that may not easily be seen. An appraisal takes more of a high-level look at a home and then combines this with research and area comps to help assign a value to the property.
Who Appraises the Home?
Since all parties have a vested interest in the value of the home, it’s easy to understand why an appraisal must be conducted by a licensed third party appraiser who has no connections to the buyer, seller, or lender. This way, everyone can rest assured that the appraised market value of the home is unbiased, fair, and free of any outside influence that could benefit any party.
Most often, the lender schedules the appraisal, but it is up to the home buyer to pay for it. The appraisal fee is a flat and upfront, out-of-pocket expense that will not be refunded if the sale falls through or if either party decides not to move forward with the transaction.
How Much Does a Home Appraisal Cost?
If you are getting a single-family home appraised, you can likely expect to pay somewhere between $300 and $400, on average, according to finance expert Dave Ramsey. Most often, the buyer will pay for the appraisal — along with other closings costs when he or she is buying a home.
Of course, there are several factors that can influence the cost of an appraisal, including:
The size of the home
The type of property being appraised
The location of the property
The condition of the existing home
The amount of time and work required to complete the appraisal
For instance, a larger home or even a multifamily property will take more time to appraise than a smaller bungalow. A home with numerous unique features can also make it hard to find suitable comps in the area, which can mean more time spent to accurately determine a home’s value. While $300 to $400 is a solid average cost, it’s important to keep in mind that you may end up paying more, or less, depending on these factors.
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