Appraisals – The What, The Why, and The Who Pays
The What
An appraisal is used to determine whether a home’s sale price or estimated value is appropriate given the home’s condition, location, and features. The appraisal helps the bank protect itself against lending more than it might be able to recover in the case of default or foreclosure.
Most lenders have an approved list of vetted appraisers which must be used for the appraisal. Typically, an appraisal costs between $350 – $550.
The Why
Before requesting an appraisal, many lenders (and mortgage insurers) use automated evaluation tools, accessing market data (real estate sales data, MPAC assessments, etc..) to determine whether the value is accurate. However in some cases an appraisal is still required.
In a purchase, an appraisal might be requested under the following conditions:
- Private sale (e.g. not using a Realtor, ComFree, Property Guys, etc.)
- Using the same realtor for the purchase as for the sale
- Bank / Foreclosure sale
- The value of the house is significantly different that the surrounding homes
In the case where borrowers switch to another lender without adding money to the mortgage, typically an appraisal is not required.
With a refinance (e.g. where the borrower wants to add money to their existing mortgage), the lender in almost all cases will require an appraisal.
Who Pays
In a mortgage-insured purchase (where the borrower is putting less than 20% downpayment), if an appraisal is required, the insurer will typically pay.
If an appraisal is required for a purchase with more than 20% downpayment or a refinance, some lenders will cover the cost. However in some cases, the borrower will have to pay for the appraisal.
In a refinance, typically the borrower pays. However we do have access to lenders and special products where the appraisal is paid for.
How we can help
As Mortgage Agents & Brokers, we get as much information and documentation upfront about the borrower and the property to minimize the potential that an appraisal will be required. We also review all closing costs for purchases and refinances with clients to ensure that there are no surprise costs. Speak to one of our agents today about your purchase, refinance or renewal to find out your options!