Let’s do a bit of role-playing. Visualize yourself as a loan officer, which, chances are, will not be hard since many if not most of the readers of the Mortgage Press are. Consider that you are located in Texas, that some time ago you ordered an appraisal in Oklahoma and that the fee was $300. You did not give much thought to the fee, as it seemed to be within the realm of normalcy. Furthermore, consider that you ordered another appraisal in Oklahoma today for a different transaction and that you were quoted a fee of $550.

Now this gets your imagination to rambling as to why this could be so different, given that both products are for house appraisals and that the property is located in the same state. Your client was given a good faith estimate of $300 and now you must break the news that your estimate was too low and that he must come up with another $250 for closing. Chances are he is trying to take the excess fee out of your commission. You did your homework in ordering the appraisal by contacting three different appraisers in the vicinity of the property. One of them did not want to do the appraisal at all, one was too busy and could only provide two-week turn time at $600 and the appraiser whom you ended up using promised one-week turn time at a price of $550. To add insult to injury, the appraiser, whom you contracted with, was not all that enthusiastic and made inferences that what he was offering was a good deal.

As are so many things in our lives, the devil is in the details. On the surface it would appear that an appraisal is an appraisal. An appraisal is a commodity, or that is the way many see it. Appraisals are mostly on the same or similar forms, they all seem to contain three comparable sales that sometimes are not very comparable, and all require a property inspection and a few photographs. That’s it, so why the large disparity in price?

Perhaps much of the problem is in not having a better understanding as to how appraisers make their living, what challenges they are confronted with and what is their cost of doing business. Since I am an appraiser, having been there and done what the appraisers do, it is not hard for me to understand what they go through and why their fees are what they are. To the contrary, I recently became anxious over the pricing offered me by a physician. It was not until I learned that the cost of his professional liability insurance amounts to approximately 30 percent of his billable fees that I began to understand the need for what I thought was a very high fee.

Let’s examine some of the variables involved in appraisals that can cause the fee to double from one to another.

• The Form – There are a number of appraisal forms that may be required, depending upon the lender, the type loan, the type property and other factors. The two most common are the FNMA 1004 and the FNMA 2055. The former is a full appraisal form and requires an interior inspection. The latter is a limited form and is prepared from an exterior-only inspection or a drive-by. The drive-by is the less expensive of the two.

• Property Location – This is one of the most critical issues in appraisal pricing. If the property is located in the city, the location usually does not contribute significantly to higher fees. If the property is in a remote area, contrary to popular belief among some, this can be a significant factor in raising the appraisal fee. There are a number of reasons for the higher fees, the cost of traveling being only one of the factors. Another primary reason that appraisal fees are higher on remote properties has to do with the availability of comparable data. Sometimes there is no multiple listing service or limited multiple listing services. Also, there tends to be fewer sales in sparsely populated areas, which requires more searching and digging for data, even if there is a good data service available.

• Type Home – The size of the home can be a major factor in the price of the appraisal, particularly if the home is very large, has many offsets and corners or if it is of an unusual design.

• Size Site – Anything over the typical half-acre to one-acre lot will contribute to an increase in the appraisal fee. For example, if we have a home on 20 acres of land finding comparable data is more difficult and would take more of the appraisers time than for a one-acre lot, which is more typical.