Why do you have to pay for a home appraisal upfront?

Here’s the deal: when you’re buying a home, your lender isn’t just handing you a loan without making sure the house is actually worth what you’re paying for it (and that is a good thing). Think of the appraisal as a safety check.

Why does this matter?

1. It’s all about protecting you: The appraisal ensures the home is worth the price you’re paying. If the house is valued lower than what you’re offering, it could save you from paying too much and ending up losing money—and no one wants that.
2. Independent check: Appraisers are neutral. They’re hired to give an unbiased value of the property, which helps you feel confident that you’re not overpaying. Since they’re not working for the lender, you pay them directly—making sure everything’s legit.
3. Commitment to the process: By paying upfront, you’re showing you’re serious. Appraisals take time, and paying for it upfront helps get the process moving without any hold-ups. It also shows you’re invested in making sure everything checks out with the house.
4. Non-refundable, but worth it: If the deal doesn’t go through, the appraisal fee is non-refundable. So, if the deal doesn’t close, that money is spent. This is because the appraisal is a service done by an independent appraiser, who’s completed their work by the time you get the results. While the thought of loosing out on the money might be stressful, if you do not end up closing on the home, it is worth it to protect your financial interests on the much larger sum of money, the total home cost.

Can I ever pay for my appraisal late?

Unfortunately, no. The appraisal has to be paid upfront because it’s conducted by an independent third party, separate from your lender, and is essential for your underwriting team to even begin their review. This unbiased valuation is a critical step in the mortgage approval process to ensure both you and the lender have an accurate property value. If you don’t pay the appraisal fee on time, it could delay your loan approval, which might mean missing out on the home if another buyer steps in or if timing is critical.

Do you have to get an appraisal?

In most cases, yes. If you’re getting a mortgage, the lender will require an appraisal to protect both you and them. That said, there are some special situations, like certain government-backed loans (FHA, VA) or if you’re refinancing and the lender agrees to skip it, but those are exceptions, not the rule.

How much should I save for an appraisal? 

How much your appraisal costs will depend on the area you live in, the home’s value and unique features. You can expect the appraisal to run from $400, to $1,000. That being said, an appraisal isn’t something you can shop around for, since it is a third party service, and a neutral entity. 

What are other costs I can cut?

There are a few areas you might be able to reduce costs, but it depends on your situation:

• Closing costs: These can be reduced by negotiating with the seller to cover some of the fees or by comparing different lenders to find better rates. Additionally, double check to see if your lender is charging you any lender or origination fees, and if so consider checking out a lender that does not charge any (like us at Tomo Mortgage,) this can save you several thousand dollars, likely more than the cost of what the appraisal will cost. 

What about credits?

In a buyer’s market, you might have a unique advantage when it comes to covering upfront costs like appraisals and other fees through credits. Here’s how it can work:

1. Seller Credits: In competitive markets, sellers are often willing to negotiate. You may be able to negotiate for seller credits, which, while they might not directly cover your appraisal cost, can help offset closing expenses. This means that while you’re covering the appraisal upfront, credits from the seller could reduce your overall financial outlay on closing day.
2. Lender Credits: If upfront costs are a concern, you also have the option to ask for lender credits. Lenders sometimes offer credits in exchange for a slightly higher interest rate, which can help cover various costs, including portions of the closing expenses. While it doesn’t reduce the appraisal fee directly, it does ease the financial burden by lowering your out-of-pocket costs at closing.

These credit options can be particularly helpful if you’re navigating the upfront expenses involved in home buying. By negotiating strategically in a buyer’s market, you can often reduce the immediate financial impact, making the process a bit easier on your budget.

Are all properties appraised the same way?

No, not all properties are appraised the same way. The appraisal process varies depending on the type of property, the location, and even the type of loan you’re using. Here’s how it can differ:

1. Type of Property

• Single-Family Homes and Townhomes: Appraisals for single-family homes and townhomes focus on the property’s individual characteristics—condition, square footage, and recent sales of similar properties in the area (comps). Townhomes, like single-family homes, don’t rely as much on shared amenities and building-wide factors, so the appraisal is based more on the unit itself and its direct comparables.
• Condos: Appraisals for condos on the other hand, do consider the unit itself but place more weight on the building’s amenities and the overall condition of the complex. Comparable sales (comps) are often based on other units within the same building.
• Multi-Unit Properties: For 2-4 unit properties, appraisers look at rental income potential in addition to market value. This makes the process more complex.
• Rural Properties and Land: Rural homes and land appraisals can be tricky. Fewer comps may make it harder to find comparable sales, and factors like acreage, outbuildings, and zoning may significantly affect value.

At the end of the day, the appraisal is in your best interest. It helps ensure you’re getting a home that’s actually worth what you’re paying.

If you’re ready to start your journey to homeownership, get pre approved with Tomo Mortgage today.