Who Pays for the Appraisal and Why This Key Homebuying Step Is Worth Every Penny
Who pays for the home appraisal? As the buyer, you will. This important homebuying step provides a professional, unbiased assessment of your home’s value.
You’ve just made an offer on a house that checks off everything on your list: location, number of bedrooms, that je ne sais quoi. To your delight, the seller accepted your offer.
Now, it’s all about preparing for your closing. If you’re taking out a mortgage, your lender will arrange something called a home appraisal. But who pays for the appraisal? Why is it considered a key part of the homebuying process? And what happens if your contract falls through?
To find out, we talked to experts like Barrett Spray, a real estate agent based in central Florida with 33 years of experience helping clients navigate the homebuying process, chatted with two appraisers about the ins and outs of home appraisals, and tapped into HomeLight’s extensive homebuying resource database.
Let’s get you some answers. This guide will help you understand who pays for the home appraisal and why it’s important.
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What is a home appraisal?
According to the National Association of Realtors®, only 29% of residential sales are cash sales, so it’s likely that you’re taking out a mortgage to finance your home purchase. That means that between the time your offer is accepted and the day you close on your home, you and your lender will be in frequent contact as they review your finances and prepare your loan.
One piece of information your lender will look at closely is the home appraisal. This is a professional assessment of a property’s value, based on a thorough review of the house and property by an independent appraiser.
The Appraisal Institute, a global professional association of real estate appraisers, calls an appraisal a written report that consists of a description of the property and its locale, an analysis of the “highest and best use” (or the most profitable use) of the property, an analysis of sales of comparable properties “as near the subject property as possible,” and information regarding current real estate activity and/or market trends in the area.
Why is the appraisal so important to your lender? Simply put, they want to make sure your new home is worth the loan they’re providing. This due diligence protects the lender in case you default and they need to recover their costs. Importantly, it also protects you by validating that you’re not overpaying.
“What it really is supposed to do is give [the buyer’s] bank a feeling that the asset that they’re purchasing is worth the amount that they’re purchasing it for,” says Spray. “That is what it’s supposed to do for the buyer as well.”
