When Is the Appraisal Fee Paid? Upfront or at Closing?

An appraisal fee is a common charge for a professional property valuation in real estate transactions. Understanding when this fee is paid is important for those involved in home purchases or refinancing. This article clarifies the typical timing for appraisal fee payments, detailing whether they are paid upfront or at closing.

What an Appraisal Fee Covers

An appraisal fee covers the cost of obtaining an unbiased, professional valuation of a property. This valuation is conducted by a licensed appraiser who assesses the home’s market value based on its condition, location, and comparable sales. The primary purpose of an appraisal is to protect the lender’s investment by confirming that the property’s value adequately supports the loan amount. It helps mitigate risk for lenders and provides assurance that the property serves as sufficient collateral.

For the buyer, an appraisal offers an objective benchmark, helping to ensure they do not overpay for a home. While the lender typically orders the appraisal, the buyer is generally responsible for paying this fee in most residential transactions. In some instances, a seller might agree to cover the appraisal cost as a concession during negotiations. Appraisal fees can range from approximately $300 to $750, varying by factors such as the property’s size, location, and complexity.

Payment Points in Home Purchases

In a typical home purchase, the appraisal fee is typically an upfront cost, paid directly by the buyer. This payment occurs before the appraisal is conducted, not at closing. The process usually begins once a purchase agreement is in place and the loan application is progressing.

The lender initiates the appraisal order to ensure an unbiased evaluation. The buyer is then required to pay the appraisal fee before the appraiser performs the on-site inspection and completes their work. This upfront payment ensures the appraiser is compensated for their service, regardless of the transaction’s ultimate outcome. This early payment is a standard practice in the mortgage process and is necessary for the loan’s underwriting team to proceed.

Payment in Refinancing and Other Scenarios

The timing of appraisal fee payment in other real estate scenarios mirrors that of a home purchase. When refinancing a mortgage, the appraisal fee is also an upfront cost for the homeowner. This payment is made shortly after the refinance application is submitted and the appraisal is ordered by the lender.

For all-cash home sales, a lender-required appraisal is typically not necessary as no mortgage loan is involved. However, a buyer may choose to obtain an appraisal for their own due diligence to ensure the property’s value aligns with the purchase price. In such cases, payment timing is more flexible and typically negotiated directly between the buyer and the appraiser.

Non-Refundable Nature and Implications

A significant characteristic of appraisal fees is their non-refundable nature once the appraisal service has been initiated or completed. Once the appraiser has performed their work, whether by conducting an inspection or delivering the report, the fee is generally not returned to the buyer or borrower. This holds true even if the loan does not close, the home purchase falls through, or the appraised value comes in lower than expected.

The reasoning behind this policy is that the appraiser has rendered a professional service, and they are compensated for their time and expertise, not for the outcome of the transaction. This means that if a deal collapses after the appraisal fee has been paid, the buyer or borrower will not recover that specific cost. It is a financial outlay for a service already rendered, irrespective of the transaction’s completion.