If you're planning to buy or sell a house, you might be wondering if an appraisal is included in the closing cost. In this post, we researched this question thoroughly and found straightforward answers. We're here to tell you all about it.
Appraisal costs can either be paid along with the closing cost or right after a buyer orders an appraisal but are typically paid for in conjunction with the closing cost. If you are a seller, an appraisal will be paid after the property is appraised, as this is typically part of the first steps when selling.
We have a lot to unpack here. So, we recommend that you continue reading as we explain additional questions about the topic. We will also suggest some interesting and informative posts at the end of this article related to appraisal. Let's go!
Is the appraisal part of the closing cost?
Getting an appraisal is one of the first steps in acquiring or selling a property. If you are taking a loan for a mortgage, an appraisal will be required by the financer of your loan to know if the amount you are borrowing equals the property's value.
Similarly, if you are a seller, getting a proper appraisal of the property will give you an idea of the ballpark that you can price your property in order to attract potential buyers and close a sale.
Typically, appraisals will be part of the closing cost. But as a buyer, you can pay for it upfront after you request an appraisal. It will depend on how you plan on getting it done. Lenders will be the ones to request an appraisal, so the methodology will typically come from them.
Appraisal fees are typically paid right before the closing and are already part of the latter stage of the deal, where the buyer will finally own the property. If the appraisal fee is included in the negotiation, it would be expected for the buyer to ask for the seller to cover the cost of the appraisal fee.
If a buyer chooses to pay the appraisal fee upfront, it would be best to talk with either the seller or the lender if this is possible in the given situation.
Appraisal fees are usually included in closing costs so that all payments are made at once. But if you prefer an earlier payment, this could easily be done, and the bank or financier will usually agree with this.
While this is an option, a problem could arise if you fail to finalize the deal due to unforeseen circumstances. Appraisal fees are non-refundable. You will still pay for the appraisal regardless of what happens later on, and you may lose leverage in negotiations if you pay for the appraisal too soon.
Who pays closing costs?
The closing cost will be shouldered by both the seller and the buyer, as it will be split between the two. However, the buyer usually covers the majority of the closing cost, such as application fees and home inspection fees.
Meanwhile, the seller will be the one to cover local taxes on the sale and municipal fees. Below are some of the most common fees associated with a closing cost.
- Appraisal fee
- Title insurance
- Credit check fee
- Application fee
- Home inspection fee
- Title search fee
- Origination and/or underwriting fee
- Transfer tax (if applicable)
How much does it typically cost to have an appraisal?
A property appraisal will vary from state to state, but on average, you can expect anywhere between $300-$400. Expect a higher home appraisal cost in more urban areas like New York, Los Angeles, and Chicago.
Appraisal costs in huge metropolitan areas can have a starting range of $600 and even top $1000 for larger properties.
How much is the total cost of closing?
The total cost of closing could make up a total of 3-6% of the total cost of your loan. Again, these numbers will vary from location to location. Some of the fees mentioned above in closing will not be required in all cases.
So if you take out a loan of $100,000, you can expect to pay anywhere between $3,000-$4,000 in total closing fees.
What are the different types of appraisals?
There are four common types of appraisals. Appraisals are done by evaluating the property as is. The appraiser will not value the property of what it could be (structures) or what it was, but rather its present conditions.
That is why, before having an appraisal, make sure that the property is fixed and free of issues like a leaky roof, malfunctioning power supplies, etc. Cleaning your house will also help the appraiser see the house's full value.
In terms of potential, the appraiser may refer to the lot or land on which the house is built, not the structure of the building.
Below are the most common types of appraisals.
Full appraisal
By its name, a full appraisal is when the appraiser thoroughly evaluates the property. They will enter the house, take pictures and even do some measurements.
They may also inspect for integrity problems with the house (if any). This is a thorough inspection and is the most common type of appraisal.
Drive-by appraisal
A drive-by appraisal is done by doing a drive-by inspection and evaluating the property only by looking at it without entering. Other data will supplement their observations, such as public records of the property and other similar value listings in the area.
Desktop appraisal
A desktop appraisal sounds as it is. The appraiser does the appraisal at their desk by looking at tax records and similar listing information found in Multiple Listing Services (MLS) instead of a conditional walk-in or an in-person inspection of the property.
Hybrid appraisal
Also called bifurcated appraisal, this is when the original appraiser hires a third-party appraiser to inspect and survey the survey for them.
What do appraisers typically look for?
The appraiser will typically look for the amenities offered in the property (the more, the better) and recent listings similar to the property in the area and how much they went for.
Appraisers will thoroughly inspect the property and evaluate if all the amenities are usable. Properties with fully functioning and well-kept basements, pools, landscaping, etc., will fetch higher appraisals than those without.
Appraisers will also evaluate the location of the property. If it is located in a fairly commercial area or is close to a developing commercial area, the appraiser may consider this as adding value to the property.
A property close to a school, mall, arena, hospital, or shopping center will have a high markup value, especially if the property was evaluated before these establishments were built close to it.
Your appraiser will generally gauge the final appraisal value close to the most recent property listing that is of similar size to yours near the vicinity. They will also take into consideration the current real estate market of the area.
Who orders an appraisal: buyer or seller?
Usually, sellers and lenders will be the ones to order an appraisal of a property. As stated earlier, the lender will request an appraisal to see if the planned loan will match the property value. At the same time, the seller will typically have an appraisal to know how much to sell the property.
If a seller requests an appraisal on their own, they will pay the appraiser up front, as a closing cost would only be involved if a deal is already done. The bank or financing may still request an appraisal of their own even if the seller has already appraised the property.
Who performs appraisals?
Appraisals, especially home appraisals, are done by licensed appraisers authorized by the state. These are proper and duly qualified appraisers sanctioned by the state for property evaluations. All states require that appraisers doing full appraisals be licensed appeasers from the state they are in.
This is to ensure that the appraisal will be done properly and that the proper appraisal value will be met. It will also ensure that the standards set forth by the state are followed and that both parties (leading and lendee) will reach agreeable terms.
Here's A Quick Recap Of What We Have Discussed
Appraisal costs can either be paid upfront or together with all the other closing costs. It would be best to have your appraisals paid in closing as they are non-refundable. If for any reason, you do not continue with the loan, you will still be obligated to pay for the appraisal if it was already done.
We hope that we have satisfied your questions about appraisals. Do you have any more buying or rent-related concerns, particularly about home appraisal matters? Check out some of our previous articles below!
Are Appraisals Paid At Closing?
Should I Share My Appraisal With A Realtor?
Appraisal Value Of Walkout Basement – Does It Count As Square Footage?
