Who Pays for the Home Appraisal When Selling a House

In the process of selling a house, the question often arises: Who should foot the bill for the home appraisal? The answer may vary depending on the circumstances and the terms of the contract, but generally, the buyer covers the cost.

Loan-Secured Transactions

When the buyer is securing a mortgage loan, it is customary for the buyer to bear the expense of the home appraisal. This appraisal is conducted to verify that the property is worth the amount of the loan. The mortgage lender requires this to ensure that in case of a default, the loan can be covered by the equity in the property. The lender needs to know that the buyer isn't borrowing more than the property's true market value.

The Role of the Appraiser

The home appraisal is typically conducted by an appraiser hired by the lender. However, in some cases, the buyer may decide to get an independent appraisal to ensure they are not overpaying for the property. This is a wise move, especially if the buyer is financing the purchase. This type of appraisal can cost anywhere from $300 to $500 on average.

Inspections vs. Appraisals

It's important to distinguish between a home appraisal and a home inspection. While both serve to assess the value of the property, they have different purposes. An appraisal is part of the mortgage process, whereas an inspection is a thorough evaluation of the home's condition for any defects or issues. The inspection is commissioned by the buyer, and a professional inspector is hired to conduct a comprehensive inspection. The buyer and their agent usually attend this inspection, which typically takes about two hours for an average-sized home.

Independent Inspection Strategy

Some buyers, especially those who are financing their purchase, may choose to get an independent inspection before the purchase. This allows them to identify potential issues and negotiate the purchase price based on the cost of repairs. For instance, a couple I represented found that a home needed significant repairs, estimated at $200,000 to bring the home up to code. They paid for an independent inspection, had a contractor assess and price the necessary repairs, and used this information to negotiate a lower price, successfully purchasing the home for $400,000, despite its initial asking price of $500,000.

The Drive-By Appraisal

It's worth noting that in some cases, particularly if the home is not secured by a mortgage, the lender may opt for a drive-by appraisal. This is a quicker, less comprehensive version of the appraisal process where the appraiser may not even exit their vehicle to conduct the inspection. A drive-by appraisal can be just a formality and does not provide as much detailed information as a full appraisal. It's important for buyers to understand the difference between a drive-by appraisal and a full inspection.

State Regulations and Contractual Terms

While the trend is for the buyer to cover the appraisal cost, this can vary by state and is highly dependent on the terms of the contract. The contract may specify that the seller or a third party pays for the appraisal. In California, it is typical for the buyer to cover the cost, but this is not a hard and fast rule. The terms of the contract should be carefully reviewed to ensure no unexpected charges come into play.

It's crucial for buyers to be aware that not everything in a contract is what it seems. The terms of the contract can decide who pays for the appraisal, even if the closing statement might suggest otherwise. Being well-informed and understanding the terms can help protect the buyer's interests and ensure a smoother real estate transaction.

Conclusion

The responsibility for paying for a home appraisal typically falls on the buyer, especially when financing the purchase. However, understanding the difference between an appraisal and a home inspection, and how the terms of the contract can impact the payment, can help buyers make informed decisions and protect their interests during the home buying process.