When purchasing a home or condominium throughout California’s Tri-Valley area, many buyers wonder who actually pays for the home appraisal. There are a lot of closing costs and different fees built-in for buyers and sellers in a purchase and sale agreement. Sellers pay for excise tax when selling the property and several courier fees all culminating into their own closing costs. Buyers also have several closing costs and one of those includes the appraisal.
In order for a lender to properly evaluate a property, they must discover fair market value on a home. Lenders will order a home appraisal for all borrowers to make sure that they’re not overpaying for a home and is the property is the proper value for what the borrower is requesting.
Federal banking regulations require that the lender order the appraisal. This is not something the buyers can do on their own. If the buyer was planning on purchasing a home with cash and they wish to have an appraisal conducted they would need to pay for it out of their own pocket. But, because it is the lender that is requesting the value, they will order the appraisal but still make the buyer pay for it. However, federal law also entitles all buyers to receive a copy of the completed appraisal.
Lenders will usually collect the cost of the appraisal upfront. If it is not collected upfront it will be added into the closing costs. Appraisals typically cost between $400 and $500 but appraisers can charge additional fees, especially if they need to make multiple trips for different reasons. Most of the time, an appraiser will be able to conduct the appraisal in one trip. Extenuating circumstances may prevent the appraiser from conducting the entire appraisal at the scheduled time. This could be due to a tenant or a seller that’s being unreasonable and not allowing the appraiser to tour the property or the home or for some reason, there was a major part of the property that was accessible at the time.
An appraisal is not a home inspection. Home inspections are simply a report on the structure and integrity of the property and the construction itself. An inspector will not base documented value to the home but may be able to tell the buyer what the costs of replacing certain items could be. However, buyers should not take this into account when viewing the appraisal. Often times, buyers will say “the appraiser only said that this was worth $300 but my inspector said it was worth $500!” The appraiser is really the one that will determine the value of the home. Now, if there’s something that the appraiser has missed or has grossly undervalued in the home, the seller can certainly contest this. For instance: if the seller had upgraded a particular feature in the house that may not be visible to the outside with some high-quality materials that could add a lot of value to the property, the seller can make note of this and asked that the appraisal be changed. However, it is up to the appraiser to determine the value in the end.
If the property does not appraise for the borrowed amount, the buyer will either need to come up with the difference on their own or the seller will need to lower the price. If neither is willing to budget, the transaction will usually be terminated because financing will not be completed.
For more information on appraisals, Tri-Valley real estate or if you have questions on a particular property or transaction feel free to contact me today.