Q: I just made an offer on a house and the seller has asked me to pay for my own appraisal and then he’ll pay me back at closing. If he’s going to pay for it in the end, why do I have to pay for it at all? It doesn’t seem fair.
A: As you probably already know, the only reason you need an appraisal is because you are getting a mortgage.
While, in the greater Albuquerque area, the seller often pays for the appraisal, they also sometimes ask the buyer to pay for it in advance and then get reimbursed at closing. Sometimes they want this done with inspections as well and it’s not uncommon for the buyer to say “yes.”
The purpose of an appraisal is to assure the lender of the house’s value. They are giving you a big loan for the purchase and you are using the house as collateral.
Of course, they need to make sure the collateral you’re promising is worth what you say its worth. And an appraisal answers the questions: “For how much would this house sell on the open market?” or “What would a reasonable buyer pay for this house?”
An important thing to remember is that in no way do appraisals benefit the seller. Presumably, the value will come out at or above selling price and you’ll get your mortgage. But what if something happens with inspections and you decide to walk away from the house?
Or you can’t get your financing for some reason? Or the appraisal comes in low? In any of these scenarios, the entire deal might fall apart. If the seller was responsible for the appraisal, he would still have to pay for it and would not be able to use it for the next person. (Generally speaking, the appraisal is useless with the next buyer, whereas he can reuse the inspections.)
Finally, besides the earnest money – which in this area is relatively small compared with the rest of the country – the buyer has very little invested in a property they’re planning to purchase. Paying for the appraisal in advance is just another way to show good faith that you intend to move forward and buy the property barring any major unforeseen issues.
If the remaining terms of the seller’s counter offer seem reasonable to you, I would not let this stop you from moving forward. Congratulations on your new house!
Talia Freedman is a Realtor with Signature Southwest Properties.