The San Francisco Bay Area is home to some of the most expensive real estate…
Who Pays for the Home Appraisal and Inspection in California?
Who pays for the home appraisal and inspection in California, between the home buyer and seller? And when do they have to be paid?
In a previous article, we explained who pays which closing costs in California, between the home buyer and seller. Today, we offer another installment in the “who pays what” series, by looking at the home inspection and appraisal process.
In California, the buyer typically pays for the inspection and home appraisal during a real estate transaction. The inspection directly benefits the buyer, so it makes sense for them to pay for it. And the appraisal is usually required by the buyer’s mortgage lender. But like all things real estate, much of this is negotiable.
Buyers Usually Pay for the Appraisal and Inspection
For those who are unfamiliar with the terminology, let’s start by clarifying what home inspections and all appraisals are and what they are designed to do.
A home inspection is a thorough, visual examination of a property’s structure and major systems. The inspector will assess the roof, foundation, heating and cooling, plumbing, electrical, and other elements. The goal is to identify potential defects, safety issues, or components nearing the end of their lifespan that might soon require repair.
A home appraisal is an evaluation performed by a certified appraiser to determine the fair market value of a property. Appraisers will analyze the home’s size, features, overall condition, and recent sales of similar homes in the area to produce an objective estimate of its worth.
The fundamental difference lies in their focus:
- A home inspection reveals the condition of the property, giving a buyer a detailed look at what they’re purchasing. These inspections are optional in California. Home buyers are not required to have one, but they could benefit by it. It’s your call.
- A home appraisal determines the value of the property, confirming to the mortgage lender that the loan amount is in line with the home’s worth. In California, a property appraisal is almost always required when a mortgage loan is used to buy a house.
But getting back to the question we started with: Who pays for the home appraisal and inspection in California?
In most cases, the buyer pays for both the home inspection and the appraisal. Why? Because both of these procedures either benefit the borrower or the mortgage lender. Therefore it’s the buyer who typically pays for them.
Pre-Listing Preparation Done by Sellers
There are also scenarios where a homeowner and soon-to-be seller might pay to have a “pre-listing” inspection or appraisal performed on their own house. The buyer would not be involved in this process, since it takes place before the home is even listed for sale.
Here’s how it usually works:
Pre-Listing Appraisal
A pre-listing home appraisal provides the homeowner with a professional assessment of their home’s current market value. The seller can use this information to determine a realistic and competitive asking price when listing the house for sale.
A pre-listing home appraisal can help the seller avoid the pitfalls of overpricing (which can scare off buyers) or underpricing (which leaves money on the table). This unbiased valuation can also give the seller greater negotiation power and potentially streamline the transaction.
In this scenario, the homeowner / seller would pay for the appraisal because it’s being performed for their benefit, rather than the buyer’s benefit. This is a different scenario from a mortgage lender ordering an appraisal to protect their investment and reduce risk.
Pre-Listing Inspection
A pre-listing home inspection gives the homeowner a better understanding of their home’s condition, prior to listing it for sale. It can uncover potential repairs or issues that may surface during the buyer’s inspection, leading to delays or price reductions.
By having a pre-listing inspection done, the seller can either address problems beforehand or price the home accordingly. This transparency minimizes surprises, builds trust with buyers, and often results in a smoother, faster sale.
Here again, the seller would pay for the home inspection because the buyer hasn’t even entered the picture yet. In this case, the seller would receive the inspector’s report and explanation of potential repair items. So they would be the one to pay for the inspection.
Negotiating With Sellers
As explained above, the standard practice in California is for the buyer to pay for both the home inspection and the property appraisal. However, depending on local real estate market conditions, a buyer might be able to negotiate these items with the seller.
In a slower real estate market, where homes sit on the market for longer periods and sellers are eager to attract buyers, the dynamics of negotiation can shift.
In a slow market where sellers are motivated to close deals, they might offer to cover the cost of the home inspection themselves. This gesture demonstrates their commitment to the sale and can make the property more attractive to potential buyers.
Similarly, the seller might agree to pay for the property appraisal, or to split the cost with the buyer in order to facilitate the sale.
This is why it’s so important to understand local real estate market conditions before negotiating with a seller. In an active market with multiple competing buyers, submitting an offer with too many “strings attached” could work against you. On the other hand, it might work to your advantage in a slower market.
