The loan process can be a long and expensive endeavor. We are often asked at Appraisal Precision and Consulting Group, Inc. why appraisals are so expensive. It is a good question. Let’s explore some of the answers.
3 Reasons Why Real Estate Appraisals Cost What They Do:
1. The Middle Man
In 2010, at the height of the ‘housing crisis,’ laws were passed on a federal level that highly regulate the financial (and thus appraisal) industry. Those regulations mean bankers and loan officers no longer hire appraisers directly. Instead, most opt to go through a third-party called an Appraisal Management Company (AMC). The job of an AMC is not only to find a qualified appraiser and to be the ‘firewall’ between the appraiser and those who make lending decisions, but also to complete work behind the scenes to make sure that the appraisal product is as good as it can be. Obviously, these AMCs do not work for free. They must also take their cut. Most states do not regulate how the appraisal fee is reported. Therefore, it is an easy mistake to think that your entire appraisal bill is going to the appraiser. Most contracts between AMCs and appraisers make it a breach to reveal how much the AMC is paid vs the appraiser, but be assured that your local appraiser is only being compensated a percentage of the total.
2. More Than Meets the Eye
Another common mistake is to think that an appraisal service is only (or mostly) completed at the inspection itself. Since this is the part of the service that the homeowner observes, it is understandable that they might ask, “I paid how much? He was only in my house for 30 minutes!” Be assured that the amount of time an appraiser spends on the inspection is only a small fraction of the service he or she is providing. On average, there is approximately 1 to 2 hours of work completed before the appraiser even rings your doorbell. Furthermore, when the appraiser leaves, there may be 3 to 6 hours worth of number-crunching, calculating, driving to comparable sales, report write-ups, etc. Though every appraisal is different, most average between 5 to 8 hours of work from start to finish.
3. Paying for Expertise
When you go to the doctor, you may only see the actual physician for 15 minutes. However, it is not the amount of time, per-se, that you are paying for. A nurse may spend more actual time with you, but is not the expert. Your value is investing in the doctor’s education and experience. Though an appraiser is not a doctor, the principle is the same. Every certified appraiser has years of education, training, and expertise that they bring to the table. Dustin Harris has been appraising real estate for nearly two decades and has been intimately involved in the Idaho and Wyoming real estate markets for even longer than that. In addition to his or her vast experience and education (both initial and required continuing education), a good appraiser also spends a great deal of time studying the local market, keeping up with trends, and knowing how the real estate market is moving. None of this time is specifically billed.
When you see that invoice for an appraisal service, it might seem a little over-the-top. However, when you realize that the appraiser does not get paid that full amount and that there is much more that goes into an appraisal service than the inspection, you begin to gain a better understanding of why it costs what it does.