December 22, 2010
Part of the FHA home loan process is establishing the reasonable value of the home for sale. The reasonable value is not necessarily the asking price, but rather the estimated market value of the property based on the work of a licensed, FHA-approved appraiser. The appraisal is a crucial part of the FHA loan process; without it, the loan can’t move forward.
The FHA will not insure or guaranty a loan amount for more than the reasonable market value of the property (with approved extra costs such as energy-efficient upgrades and other items approved by the FHA to be included in the FHA loan amount). That’s why getting the FHA appraisal is so important–no loan amount can be approved without knowing how much the home is worth.
The buyer pays for an FHA appraisal, and an FHA-approved professional is required to do the job, so it’s only logical to assume the FHA would set the appraisal fee. But this is not true.
The FHA does not establish fees or rate structures for FHA appraisals. That’s not to say the FHA doesn’t have rules governing FHA fees, but according to FHA requirements, “the marketplace best determines what is reasonable and customary in terms of establishing fees for appraisal services. Fees are established and negotiated between the FHA Roster Appraiser and the client whether that is an FHA approved lender, Appraisal Management Company (AMC) or third party.”
FHA rules about appraisal fees include a stipulation that fees must not be set according to performance; the fee can’t be determined based on the outcome of the appraisal. This rule eliminates the potential for inflated values or undervalued properties based on how much fee is paid. There’s no temptation to game the system because the fees are the same regardless of the results of the appraisal.
All of this is helpful, but doesn’t answer the basic question; “How much do FHA appraisal fees cost?”
The short answer is that appraisal fees vary depending on the market. Your local costs may vary compared to other locations. If you want to budget for an FHA appraisal, the best course of action is to ask your loan officer what is typical for the size and type of property you want to buy and use that figure as a rough guide on what to plan for when it comes to your house buying budget.
Joe Wallace has been specializing in military and personal finance topics since 1995. His work has appeared on Air Force Television News, The Pentagon Channel, ABC and a variety of print and online publications. He is a 13-year Air Force veteran and a member of the Air Force Public Affairs Alumni Association. He was Managing editor for www.valoans.com for (8) years and is currently the Associate Editor for FHANewsblog.com.
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