This fee ($150 to $400 depending on the price of the home) pays for an independent appraisal of the home you want to purchase.
The appraisal is the estimate of the market value of the house for the loan.
Factors to be considered in determining market value are: present cash value; use; location; replacement value of improvements; condition; income from property; net proceeds if the property is sold, etc.
The appraisal is a critical factor in determining how much of a mortgage can be approved. After the appraisal is completed, the borrower is entitled to a copy of the appraisal.