Why Your Home Appraisal Costs $500

Why Your Home Appraisal Costs $500

When our clients get their homes appraised, they’re often astounded by the price. “$500 for an appraisal?! Wow!” they often say.

Yep. Appraisals used to cost $300, and they stayed at that price for what seemed like forever. In fact, I remember a couple of appraisers raising their price to $325. I thought they were crazy!

Appraisal fees have gone up thanks to federal legislation, specifically the Home Value Code of Conduct (or HVCC), which was passed in 2009.

Spearheaded by New York Attorney General Andrew Cuomo, the new law sought to end what Cuomo believed to be the “illegitimate and unlawful partnerships between real estate and mortgage professionals and the appraisers they use.” (Our words, not the law’s language. Read our initial post on the topic.)

With this law, the entire industry changed. Instead of operating as independent business professionals, appraisers now have to work through clearing houses known as Appraisal Management Companies (AMCs).

These for-profit companies were created to act as “neutral” middleman separating consumers, realtors and mortgage professionals.

Mortgage brokers like myself now most order appraisals through AMCs; the AMC then assigns the appraiser.

While the intent of the law was good (you can find bad apples in any industry), its effect has been problematic.

The problem with AMCs

The first problem associated with AMCs is price. AMCs (typically owned by banks) need to make a profit, so they raised the cost of appraisals, first to $400, then to $500.

This doesn’t mean that appraisers are making any more money. Most AMCs cut appraisers’ fees to a fraction of the $300 they once charged – anywhere from $75 to $150 per appraisal. As a result, many experienced appraisers left the business.

Second, entry-level appraisers flooded the market – which is causing a whole host of issues, particularly with sloppy appraisals.

We’ve lost a great deal of market knowledge

Before HVCC, I had spent years building relationships with appraisers all over the country. Post-HVCC, I no longer have contact whatsoever with appraisers.

When I had these relationships in place, I knew when I was working with a trusted, quality appraiser who had a clear and detailed understanding of the market. The appraiser could drive up to a property and, based on the exterior, give a quick analysis of its value.

In fact, I had times when a trusted appraiser would call me to say, “Glenn, I can tell you right now this property won’t appraise at what you were hoping for. Do you still want me to go in?”

When this happened, I could call off the appraisal and save the homeowner a few bucks!

Today, homeowners are charged for the appraisal as soon as it’s ordered. Many are dismayed to learn they’ve paid for the appraisal but can’t get a loan due to the property’s low appraised value.

Know what to expect when it’s time for an appraisal

If you plan on having your home appraised in the near future, educate yourself first

  • Know the difference between your home’s appraised value and its market value – Remember, a home has four “values”: Assessed value, appraised value, market value, and sale price. Don’t confuse them.
  • Do your own research using online valuation tools – While these tools don’t take the place of a good realtor, they can help you determine sale prices of similar properties in your neighborhood.
  • Know what to expect once you’ve ordered your appraisal – While today’s appraisal process has changed, some things remain the same. Learn what you can do to help keep the process on track.

The more you know about the appraisal process, the less you’ll be taken by surprise by things you can’t control.