Recently I’ve been receiving calls from homeowners who don’t need an appraisal, but want to know how much an appraisal costs to see if they are paying too much for a Portland appraisal from a different company. The callers are typically involved in a refinance or home purchase loan, and are looking over the closing disclosure documents (a list of closing fees which could have another name depending on the loan type). There, they see a large number like $600, $800, or more for the appraisal. Usually after our conversation, the callers realize that they are not paying too much for the appraisal.
What most homeowners do not realize is that the amount listed for the appraisal on the closing disclosure typically includes management of the appraisal. To help ensure appraiser independence, most appraisals for loans are ordered through an appraisal management company (AMC). These companies have varied services that usually include hiring the appraiser, paying the appraiser, and a quality check of the appraisal report. Like AMCs or not, the AMC’s job is to make sure that the person hiring the appraiser is not influencing the appraiser and that the appraisal is of sound quality. In Portland, AMC costs typically range from $75 to $200 and are added to the cost of the appraisal shown on the closing documents.
The cost of a Portland area home appraisal (the fee paid to the appraisal company) runs about $500 in Portland right now, and will typically go up by $100 increments if the property is unique (few comparable sales), if the property is rural, if the appraisal is needed in a rush, or if the property is a rental in need of rent analysis. Add this to the cost of the AMC and it is easy to understand why homeowners are seeing fees of over $600 for an appraisal on their closing documents.
I know what you’re thinking, $500 for the basic appraisal is still a lot of money and many appraisers in other parts of the country receive much less. I agree that is expensive, but that appraisal fee must be placed in context. The appraiser typically spends eight hours or more preparing a residential appraisal report including viewing the property, driving by comparable sales, calling and interviewing agents, analyzing data, report writing, and responding to lender concerns. Office staff and technology can streamline an appraisal, but doing a thorough appraisal is labor intensive. Furthermore, most lenders do not allow an appraiser’s assistant to view the subject and comparable properties for the appraiser. (Interesting because assistants are commonly used to help control costs in other professional fields such as medical and legal.) The appraiser or appraisal company also has more overhead than one might think including unbillable hours, insurance, computers and office, automobile, licensing, continuing education, data subscriptions, professional associations, accounting, and so on. Also, the appraisal profession has high barriers to entry including required college degree, industry required education, and a two-year apprenticeship for certification. After overhead, the median residential appraiser earns roughly $50,000 annually with few or no employer benefits, and he/she retains a high risk of being sued long after a job is completed.
Appraisals are expensive to produce, but they are a necessary piece of a stable economy, real estate market, and your loan. The appraisal fee might be the best money you spend on closing your real estate finance transaction. Did I leave anything out or do you want to join in the conversation? Let me know in the comments below.
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