When selling a home, homeowners may be shocked by how many unanticipated expenses they encounter. From inspection fees that cap out at a few hundred dollars to closing costs exceeding several thousand, these costs can put a dent in your bank account and quickly eat into your new home shopping budget. By fully understanding the extent of these costs beforehand, however, you can prepare for them and protect yourself from any unwanted surprises down the road.
One cost that all sellers — from the theoretical to the potential to the highly motivated — should be aware of is that of the home appraisal. While this expense is not likely to break the bank, it can be a substantial out-of-pocket cost and is a vital tool for both homeowners and potential buyers alike. So, how much does a home appraisal cost? And why is this step so important when selling, buying, or keeping a home? Read on for the answers from Truehold.
A home appraisal, simply put, is an estimate of your home’s current market value conducted by a licensed (and unbiased) professional. This process is usually done before a sale, but a home appraisal checklist an also be completed as a prerequisite for a refinance to ensure that a homeowner is not borrowing more money than the home is worth or in anticipation of a home equity loan to understand how much equity one has accrued.
The end goal of a home appraisal will be to ensure that the property is fairly valued according to several criteria — guaranteeing that sellers recoup every dollar of their investment that they are owed and that buyers are paying a fair price for their new home. Considering a home appraisal benefits both the homeowner and the potential buyer, the responsibility can fall on either party to pay for the appraisal.
Many homeowners get home appraisals and home inspections confused, as they serve similar purposes. However, the roles that these two evaluations play during the sale process are unique, and it is important to understand the distinct benefits of both a home appraisal and a home inspection.
Whereas a home appraiser looks closely at things like square footage, the number of bedrooms and bathrooms, usable amenities, and comparable examples, a home inspector’s role is to investigate the livable conditions of a property. Wear-and-tear, leaks, damage, hazards, and overall liveable conditions will all be thoroughly examined by a home inspector. With that said, both home inspectors and home appraisers will consider the property's condition — though a home inspector does this more to ensure that the property does not pose a danger to potential buyers than to put a reasonable price tag on the property.
Home inspections still play a valuable role in both the sale and purchase processes, and you can prepare yourself for a home inspection by learning more about how long home inspections take.
Should you shoulder an appraisal fee? On average, a home appraisal should cost around $450 — but this cost can fluctuate wildly depending on the size of the property and your location. Appraisals for large multi-family homes in competitive markets, for example, can cost up to $2,000. Comparatively, a single family home in these same markets can top $800, making it all the more important to anticipate these costs when preparing to sell your home or refinance. Be sure to also ask and understand how long does a home appraisal take, and make sure the time is worth the investment
Aside from factors like area and property size, the type of home loan used by the borrower (the buyer, in this case) can also influence the average cost of a home appraisal. Government-backed home loans, like VA loans and Federal Housing Administration (FHA) loans will require a specific type of home appraisal; these appraisals can range from $425 to $825 for single-family homes. However, the Department of Veterans Affairs has set limits regarding how much appraisers can charge for VA loan appraisals, meaning these qualifying borrowers are protected from the sky-high appraisal rates that other borrowers in a given area may be subject to.
The following is a complete list of factors that may determine the cost of a home appraisal:
As a whole, despite the broad spectrum of prices for home appraisals, this industry is heavily regulated, and licensed appraisers cannot charge unreasonable rates for their services.1
We should note that, while you may want to avoid certain subjects with a home appraiser, your goal should not be to fool your appraiser into thinking your home is worth more than it is. Besides, home appraisers are licensed professionals and will likely be able to see through any attempts at dishonesty or “pulling the wool,” so to speak. Honesty, respect, and patience are key.
It is helpful to ask what home appraisers look for ahead of time so you can better understand how to communicate with them.
While we won’t fault you for speaking passionately about your extensive renovations, your interactions with your home appraiser should be polite and unemotional. So, rather than pleading your case as to why your home is worth what you think it’s worth, clearly communicate any improvements you have made to the property and provide your home appraiser with these relevant documents to support this claim:
This information is much more effective at convincing the home appraiser why your property is worth what you believe it is than an impassioned speech will ever be — and is more respectful of both the appraiser’s time and their expertise.
Further, homeowners and the real estate professionals representing them are legally barred from coercing home appraisers or discussing the home’s value. Don’t ask for favors, don’t pressure the appraiser; just provide as much relevant information as possible, and let the appraiser do what you’re paying them to do.
Considering a home appraisal will cost less than $500 for most American homeowners, a real estate appraisal is almost always worth it. With that said, homes under $400,000 are not required to be appraised per the Federal government’s new regulations — yet many mortgage lenders still demand properties be appraised before approving home loans. Sellers stand to benefit the most from home appraisals, but even if you’re one of the rare borrowers exempt from a home appraisal, this process is still worth it. Here’s why:
As mentioned above, most mortgage lenders require a home appraisal in order to approve a mortgage loan — and different types of loans may demand their own specific home appraisals. Though a buyer and a seller may have agreed on a certain sale price that they both feel is fair, lenders will want to ensure that this value is fair and that their borrower is not overpaying on a property. This is as much for the lender as it is for the borrower; the lender doesn’t approve a loan for an overvalued property, and the borrower isn’t “underwater” from the day they purchase their new home.
While requirements may vary from lender to lender, and homes worth more than $400,000 may be exempt, an investment of this size is more than deserving of a professional second opinion.
If you’re a potential buyer in the current housing market, you’re already paying a hefty premium. Further, many sellers are hiking prices beyond their actual value to try and take advantage of this unprecedented market — and a home appraisal can help ensure you don’t pay an unfair tax simply for wanting to buy a home in this economy. Considering hefty closing costs, real estate broker fees, and the other thousands of dollars in fees that can stem from being a home buyer, it makes sense to want to pinch pennies by skipping a home appraisal. However, if a $500 appraisal is the difference between overpaying by $20,000 and paying a fair price for your new home, we’d say it’s well worth it.
A home is the largest investment many Americans will ever make, and — as with any investment — a homeowner’s goal should be to sell their home for more than they paid for it. While this is not always possible and is largely dependent on market conditions, a home appraisal is the best way for homeowners (interested in selling or not) to understand the true value of their home relative to what they paid for it. If your appraisal comes in lower than anticipated, or if you’d like to improve your home’s value to increase your budget for your next home, you can tackle strategic home improvement projects before seeking a reappraisal.
Without a home appraisal, you’re relying on what buyers are willing to pay for your home or what realtors think their clients deserve to pay. To make back every penny of your investment (and then some), be sure not to skip the home appraisal.
If you’ve made repairs, renovations, updates, or improvements of any size to your home since it was last appraised, an updated appraisal will help you ensure that these value-adds are factored into your home’s value. While things like a fresh coat of exterior paint, new fixtures, and energy-efficient appliances might not seem significant enough to warrant a new appraisal, these improvements can greatly impact your home’s value — and should be accounted for.
Renovations that have increased your home’s bedroom and bathroom count or its usable square footage are especially deserving of a new home appraisal, as these are some of the biggest factors influencing a home’s appraisal value. You’ve spent money, dedicated time, and expended energy to make your home a better place for yourself and future owners; an updated appraisal will ensure this was all worth it.
Considering the current height of the American housing market, it should be no surprise that only 52% of homes had a sale price below the appraised price as of January 2021 — the other 48% saw contract prices at or above the appraisal value. Appraisal values that undercut sale prices can kill a deal instantly, as many mortgage lenders will refuse to issue a loan for more than a home is worth. Of the buyers that manage to get financing, many will be less likely to act quickly on a home they know to be overpriced. Therefore, homeowners wanting to sell their home quickly (or at all) should rely on a professional home appraisal to ensure that their home is appropriately priced.2
If your home doesn’t appraise for what you think it’s worth, you can still list your home for higher — just know that this can cause issues for prospective buyers and slow down the selling process. If you’re what some real estate agents would call “a motivated seller,” get your home professionally appraised and use that value as your guiding light.
Maybe you’re not a motivated seller, or even a seller at all. Rather, you’re just a homeowner looking to take advantage of the equity you’ve accrued in your home by means of a refinance, home equity loan, or another mechanism. If this is the case, a home appraisal is equally important — if not more important — as if you were planning to sell. Because your home equity is calculated using the ratio of what you owe on your home to what your home is worth, it is very much in your favor to ensure that your home is properly valued.
If homes in your neighborhood similar to yours have recently sold for more than you purchased your home for, or if you have made improvements to your property during your ownership period that are likely to have improved its value (i.e., improvements to energy efficiency, added usable square footage, or increased accessibility), your appraisal value will likely be higher. And, if your appraisal value is higher, you’ll likely have more equity to work with.
This equity can be used on everything from vacations to vehicles, college expenses to — you guessed it — more home improvement projects. The possibilities are virtually limitless, but those limits are expanded even further when you tap into your home’s true value.
Hopefully, whereas at the beginning of this article, you were asking, “how much does a home appraisal cost?” you’re now asking, “how quickly can I schedule my home appraisal?”. Whether you’re buying, selling, or keeping a home, the cost of a home appraisal is far outweighed by the benefits that stem from this process — and even those exempted from the appraisal process stand to gain from a professional appraisal. To summarize, here are some key takeaways and reminders of why the costs of a home appraisal are worth it:
Home appraisals can also come in handy for those homeowners looking to age in place using a residential leaseback agreement. After getting your home professionally and independently appraised, Truehold will purchase your home from you for every penny that it’s worth and leave you with the equity you’ve worked so hard for. While you pay market rent on your home, we cover everything from maintenance to upkeep to repairs — so you can focus on living life in a comfortable, familiar environment.
To learn more about Truehold’s Sale-Leaseback and how tapping into your home equity can free up your future, request our Info Kit.
1. U.S. Department of Veteran Affairs. Chapter 12 Minimum Property Requirement. https://www.benefits.va.gov/WARMS/docs/admin26/m26-07/Ch12_Minimum_Property_Requirement_NEW.pdf
2. Corelogic. Appraisal Gap Increases in “Hot” Markets. https://www.corelogic.com/intelligence/appraisal-gap-increases-in-hot-markets/