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The Average Cost of a Home Appraisal

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The Average Cost of a Home Appraisal

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When you buy a home, your mortgage lender will ask for an appraisal to ensure the house is worth the amount you’ve asked to borrow.

You might be wondering… Why’s that important? What happens when an appraisal comes in too low? And, how much is this going to cost me, anyway?

The whole process sounds more troublesome than it is, so let's break down what’s involved with an appraisal and what you can expect to pay on average.

What’s a home appraisal?

A home appraisal, also known as a real estate appraisal, is an unbiased assessment of a property’s value. An appraiser will be brought in to conduct a visual inspection of the home to determine its fair market value.

Fair market value is key here.

In addition to the value of the property itself, the appraiser will take into consideration the price of recent sales in the area and current market conditions that may influence the value of the home.

The template set out by Fannie Mae’s Uniform Residential Report has become one of the most common methods for appraisers to evaluate homes. In fact, this form is required by the Department of Housing and Urban Development (HUD) for all Federal Housing Administration (FHA) loans.

After the assessment, the appraiser will create an appraisal report, the official document outlining the home’s value.

In addition to general details about the home, the report should include:

  • A street map indicating the appraised property’s location, as well as the comparable homes the assessor used
  • An explanation of how the assessor found the square footage of the property
  • Photos of the home from the front, back and the street
  • Photos of any relevant properties used in the assessment
  • Any other relevant information, such as current market conditions or land and tax records influencing the assessor’s valuation

An appraisal for a single-family home costs about $339 on average, but most people pay between $312 and $407, according to data from HomeAdvisor, a digital marketplace for home services.

The average cost for a multi-family home is higher, generally between $600 to $1,500.

There are a number of factors that influence where your home will fall on the price scale: its location, condition, size and how detailed the appraisal is.

As you can imagine, larger or more complex homes will require more work from the appraiser and so they’ll cost more to appraise. Appraisals also tend to be more expensive in metropolitan areas. It’s not uncommon for quotes to start at $600 for properties in a city.

Assessing a home is also more difficult if it has a number of issues or extensive damage, which can also drive up the cost of an appraisal.

External conditions can also make the appraisal process more difficult. If you live in Minnesota and the home is being appraised in the dead of winter, or you live on the side of a cliff, the appraiser may have difficulty accessing certain areas of the property and that’ll cost you as well.

When it comes to payment, a professional appraiser should either work on a flat fee or hourly rate. Fee structures based on a percentage of the home’s value are considered unethical by the American Society of Appraisers – a voluntary trade association for the industry – unless there’s a special exception in your area. Under federal law, state regulators are required to establish customary and reasonable fee structures.

Appraisal fees will generally be rolled into your closing costs, due the day you close on the sale.

The difference between a home appraisal and a home inspection

Appraisals are similar to a home inspection, but they’re done at a higher level. The appraiser isn’t combing through the home to identify issues. If something doesn’t appear broken or to be in obvious disrepair, the appraiser will assume it’s in working order.

Comparatively, when you have a home inspection done, inspectors won’t make those kinds of assumptions – it’s their job to confirm it.
An inspection will often find issues in a home that wouldn’t make it into an appraiser’s report.

So while you might think one cancels the other out, it’s important to have both done – especially for first-time homebuyers with an untrained eye.

Why’s an appraisal needed?

Mortgage lenders will require a home appraisal to ensure the home is worth what you’ve agreed to pay for it.

This protects the lender’s investment. Mortgages are secured loans, meaning you put an asset up as collateral in case you ever stop making your payments. In this case, the asset is your home.

If you were to default on your loan at any point, the lender would seek to recoup its funds by foreclosing on and selling the house. If the loan was originally for more than the home is actually worth, they may find themselves out the difference.

If the fair market value and purchase price don’t match, it’s not necessarily a deal-breaker. Your lender will ask you to pay the difference. This can delay the sale or potentially cancel it if you can’t come up with the funds.

When should you get an appraisal?

Even when you’re not buying a new house or trying to refinance your existing property, there are other advantages to getting a home appraisal.

When an appraiser can be helpful:

when
Before you make improvements or renovate This will give you the home’s “before” value, to help you gauge how much your improvements have raised the home’s value.
If you’re planning to see your home An appraisal can help you find a fair listing price that takes into account current market conditions and the prices of similar homes that have sold in your neighborhood.
To ensure you’re paying a fair amount for property taxes If you think your current property taxes are a little high, the appraisal can either confirm your suspicions or put your mind at ease.
When you’re planning to gift the home to a relative This will help determine the value, which you’ll have to report on your taxes.

Why are appraisals important?

We’ve gone over why mortgage lenders see this as an important part of the home-buying process, but there's also value for the buyer in having the home appraised.

Maybe you got locked into a bidding war and ended up with a purchase price much higher than you had originally intended. The appraisal can give you the confidence you’re paying a fair price for the home or it can allow you a moment of reflection to reconsider from a distance.

When you're buying a home and the sale hasn't officially gone through, an appraisal may give you some leverage to negotiate with the seller on price.

The appraiser’s report may also find the price you’ve paid is very reasonable. A well-priced home in good condition can help you secure a better interest rate with your lender.

What to expect if you have an FHA loan

When you take out an FHA loan, which is backed by the Federal Housing Administration (FHA), you’ll have to get a specific appraisal done.
The Department of Housing and Urban Development, the FHA’s parent organization, has a list of items the appraiser will have to run through to ensure the home is a safe and secure living environment.

Because this is a more complex and detailed assessment, FHA loan appraisals can be a little more expensive. The average cost of these appraisals is in the range of $400 to $500, HomeAdvisor found.