Do You Get Appraisal Money Back at Closing?

A home appraisal is a professional, unbiased assessment used in real estate transactions to estimate a property’s market value. This evaluation is performed by a licensed appraiser and provides an independent opinion of what a home is worth. Its primary purpose is to protect the lender by confirming the property’s value supports the loan amount being requested, thereby mitigating financial risk. For the buyer, the appraisal offers an objective benchmark, helping them understand the property’s true worth and ensuring they do not overpay.

Understanding Appraisal Fees

An appraisal fee covers the cost of this professional service, which involves the appraiser’s time, expertise, and resources to conduct the valuation and prepare a detailed report. The fee compensates the appraiser for their work, not for the outcome of the valuation. These fees, typically ranging from $300 to $1,000, are almost always paid upfront by the homebuyer before the closing date. This upfront payment ensures the appraiser is compensated for their work, as they are an independent third party separate from the lender.

Paying for an appraisal is similar to paying for any other professional service, such as a doctor’s consultation or a mechanic’s diagnostic work. Once the service has been rendered, the fee is generally considered earned and becomes non-refundable. Even if a real estate transaction does not proceed to closing, the appraiser has already completed the service, and therefore, the fee is not typically returned. In rare instances, if the fee collected was more than the actual cost of the appraisal, the overage might be refunded to the borrower.

Appraisal Fees on the Closing Disclosure

The upfront payment for an appraisal is generally not returned or credited back to the buyer at closing. This is because the fee was paid directly to the appraiser or through the lender to the appraiser before the closing date. On the Closing Disclosure (CD), this is indicated as “Paid Outside of Closing” (POC). The POC designation signifies that the fee was handled as a separate transaction prior to closing and is not part of the funds exchanged or balanced on the CD itself.

While the appraisal fee is paid outside of closing, it must still be disclosed on the Closing Disclosure to provide a comprehensive overview of all transaction costs. The CD is a final itemized statement that outlines loan terms, fees, and costs, and lenders are required to provide it to borrowers at least three business days before the scheduled closing.

Distinguishing Appraisal Fees from Other Closing Costs

The appraisal fee stands as a direct, non-refundable charge for a specific service already performed, which differentiates it from other closing costs. For example, earnest money deposits operate differently. Earnest money is a good-faith deposit paid by the buyer, typically held in an escrow account, to show seriousness about purchasing the home. This deposit is usually applied as a credit towards the buyer’s down payment or other closing costs at settlement. Unlike appraisal fees, earnest money can be refundable under specific conditions, such as if the deal falls through due to contingencies like a low appraisal or a failed inspection.

Another distinct type of closing cost involves lender credits, which are funds provided by the lender to help cover some closing expenses. In exchange for these credits, borrowers typically agree to a slightly higher interest rate on their mortgage. These credits reduce the cash needed at closing and are a form of financial adjustment, rather than a payment for a completed third-party service like an appraisal.

Similarly, property tax prorations involve dividing expenses like property taxes or homeowners association dues between the buyer and seller based on their respective periods of ownership. These prorations are adjustments made at closing to ensure each party pays their fair share, unlike the upfront, non-adjustable nature of an appraisal fee.