Appraisal Fees Should Be Paid By The Buyer

Alaska is one of the few states, and perhaps the only state, where it is customary for the seller to pay for the appraisal in a transaction. This should change and I believe it will change in the next few years as a response to the new regulations regarding the relationship between appraisers, buyers, sellers, and lenders.

The appraisers job is to give the lender an unbiased assessement of the value of the property on which they are making a loan. If the value comes in high enough it makes the lender feel comfortable with the value of their collateral in case the borrower defaults on the loan and they have to resell the property.

For some reason it has become customary in Alaska that the seller pay for the appraisal even though it is actually part of the buyer’s cost of the getting a loan. The appraiser works for the lender, not the seller, and it is the buyer who chooses to work with the lender. If the buyer were paying cash or if the seller were financing the property there would be no need for an lender or an appraiser.

I have written before about this issueWho Should Pay For The Appraisal I think the time has come for this to change.

Claire and Barb Ramsey wrote an article in the Anchorage Daily News, The Appraisal Code Needs Work. Among other things, they note that the cost of appraisers has recently risen as a consequence of the new Home Valuation Code Of Conduct.

The additional cost does not go to the appraiser but to the middle-man companies called Appraisal Management Companies, many of which are owned by the lenders. In fact, these middle-man companies will tend to drive the quality of appraisals down because they are shopping for the lowest rates and fastest turn-around times from the appraisers while tacking on a fee themselves for this service.

So the appraisers will be making less while working harder, the lender and the buyer will be receiving a inferior product, and in Alaska the seller is paying the increased cost for this inferior product. All this is the result of the government trying to “fix” a problem.

Bottom Line, it’s time for the sellers to stop paying for the appraisal. It’s really a lenders cost since they are the ones that require the appraisal. Of course, we all know that banks don’t pay for anything so they will have to charge it to the people getting the loan, the buyer.