Who Pays for an Appraisal if the Deal Falls Through?
Understand appraisal fee responsibility when real estate deals don't close. Learn about upfront costs, service nature, and contract terms.
A real estate appraisal provides an unbiased estimate of a property’s fair market value. This valuation is a standard component of real estate transactions, particularly when mortgage financing is involved. It assures all parties, including buyers, sellers, and lenders, that the agreed-upon price aligns with the property’s actual worth. An appraisal report details factors like property size, condition, amenities, and local market trends to determine this value.
Initial Responsibility for Appraisal Costs
The responsibility for covering the appraisal fee typically rests with the buyer. This is because the appraisal primarily serves the lender’s interest, ensuring the property’s value is sufficient to secure the mortgage loan. Lenders require an appraisal before approving a mortgage to protect their investment, as the property serves as collateral. The appraisal fee, which generally ranges from $300 to $550, is often paid upfront by the buyer directly to the appraiser or through the lender. This payment covers the appraiser’s service, including property inspection and report generation.
What Happens When a Deal Falls Through
When a real estate deal fails to close, the appraisal fee is non-refundable. The appraiser’s work, including property inspection and report generation, is completed regardless of the transaction’s outcome. The buyer, who paid the fee upfront, bears this cost even if the sale does not proceed, as the appraisal is a service provided, not a contingent payment tied to the closing.
Role of Contractual Agreements
Specific clauses within a purchase agreement can modify the standard allocation of appraisal costs, especially if a deal does not materialize. An appraisal contingency allows a buyer to withdraw from the contract without penalty if the property’s appraised value comes in below the agreed-upon purchase price. This protects the buyer from overpaying and provides options to renegotiate the price or terminate the agreement. While the buyer still pays for the appraisal, this contingency safeguards their earnest money deposit if the appraisal is insufficient.
Another contractual element that can influence appraisal costs is seller concessions. These are agreements where the seller agrees to cover certain buyer expenses, including potentially the appraisal fee, as part of the negotiation. Seller concessions are stipulated in the purchase agreement and can reduce the buyer’s upfront out-of-pocket costs. The inclusion and amount of seller concessions depend on negotiations and market conditions.