Is Appraisal Fee Included in Closing Costs?
An appraisal fee is part of your total closing costs, but its payment timing sets it apart. Understand how this upfront expense is documented on your loan forms.
Yes, an appraisal fee is part of the total closing costs for a real estate transaction. While it is factored into the overall settlement charges, its payment timing often differs from other costs due at closing.
The Role of the Appraisal Fee
An appraisal fee is a charge for a professional and unbiased assessment of a property’s fair market value. This valuation is a requirement mandated by the mortgage lender to ensure the property’s value is sufficient to act as collateral for the loan. If the borrower were to default on the mortgage, the lender needs assurance that it can recover the outstanding loan balance by selling the property.
To maintain objectivity, the appraisal must be conducted by an independent, state-licensed or certified appraiser. The fee, which can range from $300 to $600 depending on the property’s complexity and location, compensates the appraiser for their expertise and the detailed report they provide to the lender.
Understanding Closing Costs
The appraisal fee is one component of closing costs, which are the collective fees paid to finalize a real estate purchase and transfer the property’s ownership. Closing costs typically amount to 2% to 5% of the total loan amount and cover services from different third parties.
Beyond the appraisal, these costs include loan origination fees for processing the mortgage application, title insurance fees to protect against future claims against the property’s ownership, and recording fees to document the sale in the public record.
Payment and Documentation of the Appraisal Fee
A difference between the appraisal fee and many other closing costs is its payment schedule. While most closing costs are paid in a lump sum at the final signing, the appraisal fee is paid upfront. The buyer pays this fee directly to the appraisal management company or the lender shortly after their purchase offer is accepted.
This upfront payment ensures the appraiser is compensated for their work regardless of whether the loan ultimately closes. This fee is documented throughout the mortgage process. A buyer will first see an estimate of this cost on the Loan Estimate form, provided by the lender within three business days of receiving a mortgage application. The exact amount is listed on the final Closing Disclosure, where it is often marked as “P.B.C.,” for “Paid Before Closing,” to reflect its upfront payment status.