Appraisal Cost Higher for Investment Loans?

Question

I am purchasing a property with a conventional investment loan and the lender is giving me a price of $795 for the appraisal, stating that "appraisals cost more for investment loans". Is this true? Why should an appraisal cost more for an investment loan? I did a web search and can't find anything about this idea that it should cost more for investments. I am used to paying about $400 for an appraisal so I'm a bit frustrated. Can anyone provide insight on this?

Raymond J. Rodrigues · Answer

@Scott Frame, a single family of that size as an investment property would generally cost no more than $650 in the State of Florida from what I've seen.

$495 seems to be the standard for a primary residence. On an investment property purchase, appraisers have to create not only an appraisal, but also a comparable rent schedule (1007). This determines what the property realistically can rent for on a monthly basis. This helps offset the proposed mortgage debt in order to help you qualify, not to say you need it or anything. I hope this helps.

Scott Frame · Answer

Thanks everyone for the replies! I inquired about this price with the loan agent and evidently they just estimate high on the appraisal price. She said that in reality it will most likely be $545, which is a lot more reasonable.

Matt Jones · Answer

$795 is high from the ones I have seen and done in the past.  Appraisals have gone up in cost and this region has had long lead times for appraisals in recent months.  Maybe that includes a rush fee?  Investment loan appraisal or not, single family home appraisals in this area don’t usually cost over $595.  That is with a traditional lender or bank. If you are going hard money or some type of other financing it may be more typical for the lender to mark up the cost.

Scott Frame · Answer

Thank you @Raymond J. Rodrigues, I was not aware of the comparable rent schedule. It is good to have some confirmation, though, that the price I've been given is still high, regardless. Thanks again!

Martin Neal · Answer

@Scott Frame this is not typical and may be company specific. I wouldn’t be surprised if this is one of many ticky tac fees coming your way. You may want to shop around.

David Robinson · Answer

@Scott Frame Is it an in house lender, as in the appraiser only works for that bank or lender,  they can charge what they want depending on the circumstances.

Steve Morris · Answer

$795 for a comm property is cheap.  With resi, they have plenty of guys that bid for appraisals and spend maybe half an hour on site and then throw together comps.

Comm appraisals are fewer guys and somewhat more complex since you need to look at operating numbers and comps,. hence higher price.

Joe Splitrock · Answer

@Scott Frame I am in a different state, but I just had an appraisal come in yesterday on an single family investment property. Property is 1800 square feet and the appraisal cost $500. It could be a supply/demand issue because with so many refinances, appraisers are in high demand. It could also just be lender markup. They find creative ways to make some extra money. Ask to see the appraisers invoice.

Stephanie P. · Answer

@Scott Frame

Most lenders/brokers don't or shouldn't have control over the cost of an appraisal.  Appraisal independence is a big deal, even in the investment property world. We order our appraisals from a nationwide appraisal management firm.Here's an example of a recent appraisal order.    The lender required the standard 1004 form, 1007, comparable rent schedule and a 216 which is the operating income statement.  We created the order with their specifications and the cost was $805.  We made nothing on the appraisal and the borrower paid using the link sent directly from the appraisal management company (AMC).

Adding the layer of independence using AMC's has only driven the cost of appraisals up.  Some lenders have figured out a way to circumvent the independence of an outside AMC by having their own AMC and may charge a little less.  Not sure of the ethics on that one given the need for an independent voice when it comes to the valuation, but some have nonetheless.

Hope the real world answer explains it.

Stephanie

Raymond J. Rodrigues · Answer

@Scott Frame $795 does seem pretty high. What interest rate and fees are they charging you in section A of your loan estimate?

Appraisal Cost Higher for Investment Loans?

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