Who Pays For the Home Appraisal?

When you’re buying a house, there are a lot of steps you need to do before you can call your new house home sweet home. One critical part of the home buying process is a home appraisal—and, like many other expenses during this process, it’s the buyer’s responsibility to pay for it. In this guide, we’ll explore appraisals and why you need to budget for the cost of a home appraisal when you’re buying a house. 

What Is a Home Appraisal?

A home appraisal indicates a home’s value at the time of the appraisal and is used to determine if the selling price accurately reflects the home’s actual worth. A local home appraiser is an unbiased third party unaffiliated with the buyer or seller who assesses a number of different factors to determine a home’s value and then provides a report to the buyer and the lender with their findings.

Appraisers determine a home’s value using data including inspection results, market trends, sales data from comparable homes in the area, neighborhood information, and more to arrive at a fair and accurate value. An appraiser who does home appraisals frequently in your area will have a good eye for market information and sales trends for the most accurate appraisal.

When Is a Home Appraisal Needed?

Mortgage lenders require home appraisals before approving a loan to ensure they aren’t lending more than the home is worth. Appraisals normally take place once the buyer has made an offer and after a home inspection has been conducted. The appraisal itself only takes up to a few hours or less in the home, but the report may take several weeks to complete since the appraiser needs to compile all of the applicable data. 

Some lenders may require a specific type of appraisal—Federal Housing Administration (FHA) loans require an FHA appraisal and inspection that includes more data on the home’s health and safety than traditional appraisals. Your lender will advise you about what the appraisal should entail.

Who Pays for the Home Appraisal?

Paying for the home appraisal is the buyer’s responsibility. In many cases, the mortgage company will arrange it, but the buyer is the one responsible for the cost of the home appraisal. Having an appraisal performed is part of the buyer’s due diligence to ensure their offer is fair and they’re not asking to borrow more than the home is worth. 

Sellers may also choose to have an appraisal before putting their house on the market to have an accurate idea of a reasonable selling price. Listing your home with a price that’s too high can cause problems during the selling process if the buyer’s lender refuses to approve a loan for an inflated selling price much higher than the appraisal value. 

What if the Sale Falls Through?

Unfortunately, if the sale falls through for any reason, the appraisal fees are still the buyer’s responsibility. When reviewing the home’s appraisal, market value, and selling price, a lender may refuse to approve the loan if the appraisal comes in lower than the offer. However, the buyer is still on the hook for paying for the appraisal, so it’s helpful to do as much research as possible before making an offer so you’re less likely to have your loan rejected.

Many of the things that hurt a home appraisal can be rectified, and buyers and sellers may renegotiate the offer after a low appraisal so the sale can still go through. Using the appraisal to support renegotiations can help you still get your dream home without overpaying for it.