The home appraisal is a critical issue -- for home buyers, sellers and mortgage lenders – and here's why. According to U.S. real estate industry figures, the average cost for a home appraisal is $331, with the low end of that rage at $250 and the high end at $450. However, in the DC area, it’s common to see appraisals cost as much as $600. Home appraisal costs depend on a variety of factors, including the size of the home, the state where the residence is located, and problematic issues in doing a home appraisal that might keep the appraiser on the property longer than expected. 

What is a Home Appraisal?

A home appraisal is an objective estimate of a home's market value, based on a thorough examination of the home and property. Aside from using a home appraisal to weigh the value of a residence, mortgage lenders also use an appraisal to make sure they aren't lending the buyer more money than the home is worth. A home appraisal prioritizes the current condition, size and the location of the property. A home appraiser should be aware of the condition of the inside of the home and upgrades done, as well as know the price of comparable homes sold in the neighborhood recently (typically over the past six months).

Who Handles the Home Appraisal?

Home appraisals are conducted by licensed professionals who are experts at home and property assessments. Professional home appraisal licensing is handled by the state the property is located, and applicants need to complete 75 hours of coursework focusing on basic home appraisal principles and processes. When on the job, licensed home appraisers must maintain complete objectivity on the home they're appraising. 

Who Pays for a Home Appraisal?

Typically, the buyer pays for a home appraisal. The buyer can pay up front at the time of the appraisal or the appraiser's fee can be included in closing costs.

What's the Difference Between a Home Appraisal and a Home Inspection?

The biggest difference is who the process seeks to protect. In a home appraisal, the process protects the mortgage lender financing the purchase of the home. In a home inspection, the objective is to protect the buyer, who usually pays the few hundred dollars it takes to conduct a home inspection. In addition, a home inspection is much more focused on the condition of the property, while the home appraisal prioritizes the value of the home.

What if Your Home Appraisal is lower than the Sales Price?

It's actually not uncommon for a home appraisal to come in with a figure that's lower than the sales price. There's no guarantee that the appraisal has to match the purchase price, so if you're buying a home, and the appraisal comes in low, there are several tactics buyers usually take to keep the deal alive.

Asking the seller to match the appraisal price

Assuming the buyer is still interested in buying the home and is contractually able to back out if the appraisal is low, the buyer can ask the seller if he or she will lower the sales price to match the appraised value. The lender would also need to be involved in any price cut due to a low home appraisal.

Offering to increase home purchase down payment

To keep the deal active, a buyer might offer to increase his down payment in a low home appraisal scenario. The lower appraisal may well jeopardize the buyer's home loan, so if the buyer can jack up his down payment in order to reduce the amount he will borrow from the lender, she/he can still be approved for the mortgage. 

Dispute the appraisal outcome

Home appraisals are subjective and various factors - which may be calculated incorrectly or omitted entirely - can result in a low appraisal. Working with a real estate agent, a buyer could contact the lender and provide their own data that may correct the low appraisal figure. If the lender approves a disputed appraisal application, it's turned over to the lender's own mortgage appraisal unit for further review -- and hopefully a decision that supports the sale price is the new outcome.