Mortgages & Home Loans Real Estate Resources Why Do You Pay Appraisal Fees to Buy or Sell? By Justin Pritchard Justin Pritchard Facebook Twitter Website Justin Pritchard, CFP, is a fee-only advisor and an expert on personal finance. He covers banking, loans, investing, mortgages, and more for The Balance. He has an MBA from the University of Colorado, and has worked for credit unions and large financial firms, in addition to writing about personal finance for more than two decades. learn about our editorial policies Updated on November 29, 2021 Reviewed by Khadija Khartit Reviewed by Khadija Khartit Twitter Website Khadija Khartit is a strategy, investment, and funding expert, and an educator of fintech and strategic finance in top universities. She has been an investor, entrepreneur, and advisor for more than 25 years. She is a FINRA Series 7, 63, and 66 license holder. learn about our financial review board Share Tweet Pin Email In This Article View All In This Article Four Reasons for Appraisals and Fees What Does an Appraiser Do? What Does the Appraisal Value Mean? How to Choose an Appraiser Photo: fstop123 / Getty Images An appraisal fee covers the cost of having a professional appraiser look at a home and estimate its market value. This and other fees when buying a home should appear on your loan estimate form. The house appraisal cost is often around $300 to $450 for a single-family home as of 2022. Prices depend on the appraiser, the home's location, and how complex the appraisal is. A house appraisal usually occurs after a seller accepts an offer on a home and before closing on the sale. It often follows an inspection; there’s no need to pay for an appraisal if there’s something wrong with the home. In most cases, the buyer pays the fee for the appraisal at closing. In some cases, they may be able to get the seller to pay for it. If you're a buyer or a seller faced with this expense, you may wonder why you have to get an appraisal and pay the fee. Learn more about the homebuying process to help you budget and plan for your next home purchase or sale. Key Takeaways An appraisal fee covers the cost to have an appraiser estimate a home's market value. The fee is usually paid by the buyer unless they negotiate for the seller to pay it. Although it's usually the lender that requires an appraisal, the process also benefits buyers and sellers. An appraisal fee is a small investment, relative to the overall value of a home. Four Reasons for Appraisals and Fees There are several reasons for appraisals. They are designed to benefit all parties involved. They Give Lenders a Loan Guarantee When you take out a mortgage loan, the property serves as collateral for the loan. If you stop making payments, the lender can take possession of the property. They may sell it and use the sale proceeds to pay off your debt. Appraisals prove to lenders that the sale price of a home aligns with its value. This assures the lender that the value of the property securing the loan is sufficient to allow the lender to recoup its losses in the event of a default. By knowing the estimated value of the home, lenders can extend a loan of a reasonable amount to buyers. That benefits the lender by enabling them to recover the money upon the sale of the home in case the buyer defaults and the home goes into foreclosure. Suppose a lender granted a buyer a loan of $400,000 on a home with a market value of only $200,000. Then, the buyer defaulted on the loan. The lender would find it difficult to recoup the loaned amount when reselling the home in foreclosure. Appraisals help to prevent this risky scenario and protect the lender's assets. When lenders reduce their risk, they can (ideally) offer lower rates to borrowers. Note Appraisals are often required by lenders as a condition of closing, but they are also useful for lenders, buyers, and sellers. They Ensure Unbiased Home Estimates Lenders don't visit neighborhoods and look at houses with you. They may not be experts on your local real estate market. The people and organizations lending you money might be thousands of miles away. Your loan might be sold off to investors all around the world. They’ll never inspect the quality of your home's construction in person, and they can't be confident that they’ll get their money back. To find out what your home is worth, lenders get an appraisal from an independent professional who is not emotionally or financially involved in the deal. They Can Keep Buyers From Overpaying Even though an appraisal is a lender requirement, the buyer assumes the house appraisal cost unless they negotiate for the seller to pay it. The appraisal fee accounts for the appraiser's time and expertise in evaluating and photographing the property, estimating its value, and preparing an appraisal report. While buyers and sellers may not enjoy spending a few hundred dollars on an appraisal, the fee is small when compared to buying a home. Getting the estimated value of a home allows the buyer to negotiate a fair sale price. They can avoid paying much more for a home than it is really worth. 4. They Keep Sellers From Making Low-Ball Sales Sellers also stand to gain from appraisals, even if they agree to pay the fee. When sellers know the market value of their homes, they can avoid accepting very low offers from buyers. As a result, they can increase their returns on the sales of the homes. That also helps them avoid seller's regret. What Does an Appraiser Do? An appraiser estimates how much a home is worth. To come up with that number, they need to visit, evaluate, and document the property. That is usually done through a series of steps. Property Walk-Through In most cases, appraisers go inside the house to see the condition and features of the interior. Over a period of a few hours, appraisers will take measurements and photos to verify the house's square footage and other characteristics. These include the layout, number of rooms, property materials, health and safety issues, and recent remodels. Comparables Review Appraisers also compare the home to other homes in the area. To do so, they look at recent sales and the characteristics of those homes, such as square footage, number of bedrooms and bathrooms, and location. Appraisal Report After visiting properties, an appraiser creates a report detailing the property in question. It includes the appraised market value and those of comparable properties. You’ll receive a copy of that report, usually within seven business days. It’s a good idea to read through it and save a copy for your records. Important An appraisal only helps you and your lender understand the market value of a property. For more details about the condition of a property, you’ll need a home inspection, which is entirely for your benefit. Don’t expect an appraiser to point out every defect or to get into a crawlspace to search for issues. An inspector should perform a more thorough review of the property. What Does the Appraisal Value Mean? An appraisal needs to come in high enough to justify the loan you’re getting. In many cases, that value must match the purchase price on the contract. Again, lenders need to know that there’s more than enough value in the home to get their money back. A loan-to-value (LTV) ratio should be less than 80% to be on the safe side. If it is higher, you may be viewed as a risky borrower, which could mean you'd have to pay private mortgage insurance (PMI) as a result. Note The LTV ratio is the amount owed on the loan, divided by the appraisal value. If an appraisal comes in too low, your loan might not get approved as-is. To buy that home under those circumstances, you have a few options: Review the appraisal report to find any errors; then, dispute the value. Find a different lending arrangement; for instance, through a smaller loan. Get another appraisal done, and hope for a higher estimate, but don’t expect appraisers to “help” loans go through. Make a bigger down payment to make up the difference. That can help you achieve a better LTV ratio. Warning PMI can cost you tens of thousands of dollars over the loan term, so do your best to avoid the unnecessary expense. What if a house appraises at a value higher than the purchase price? That’s usually not a problem (unless you’re the seller, and you’re asking for too little). Any additional value is additional equity in your home. However, appraisals often come in near the agreed-upon purchase price. How to Choose an Appraiser For most loans, your lender will hire an appraiser. That means the fees will depend partly on whom your lender uses. You might not be able to shop around for a less-expensive option. Before the mortgage crisis, some appraisers were accused of inflating home prices to help loans get approved. That was sometimes done at the request of lenders themselves. Mortgage brokers and real estate agents may have had an incentive to choose appraisers who returned the answers they wanted—but not necessarily the most accurate answers. Since then, appraisers have become less willing to "help" deals go through. You can check the credentials of the person who will conduct your house appraisal. Conduct a search by location or license number through the National Registry of Appraisers. If the search reveals pending investigations for the appraiser, raise this issue with your lender to ensure that you will work with someone who is reputable. Was this page helpful? Thanks for your feedback! Tell us why! Other Submit Sources The Balance uses only high-quality sources, including peer-reviewed studies, to support the facts within our articles. Read our editorial process to learn more about how we fact-check and keep our content accurate, reliable, and trustworthy. Federal Deposit Insurance Corporation. "The Home Mortgage Appraisal: How Consumers Can Benefit." The Appraisal Foundation. "A Guide to Understanding a Residential Appraisal." Page 4.