What is the difference between a home inspection vs appraisal?
If you ever purchased a home, chances are it probably was more complex than you initially thought! While there’s a lot to be done to ensure the home-buying process is smooth and orderly, there are a few things that are important to know: the inspection and appraisal process.
Today, we’re going to educate you about what each is and the difference between the two!
Appraisal vs. Inspection: What Home Buyers Need to Know
The main difference between a home appraisal and an inspection is that an appraisal determines value, and a home inspection determines your home’s condition. Appraisal and inspection are real estate transactions carried about by licensed real estate professionals.
A quick way to remember the difference between a home inspection vs appraisal is as follows:
- Home Appraisal = Home’s Value.
- Home Inspection = Home’s Condition.
Put another way, “You will appraise the value of your home and inspect the condition.”
A Home Appraisal Determines Value
A home appraisal process consists of a walkthrough and general assessment of your home using light inspection of features, the home’s condition, and comparable sales in location to provide fair market value.
Home Inspections determine your home’s condition.
An inspection provides more insight into a home’s condition as licensed inspectors will be undergoing a comprehensive review of your home’s current state and aesthetic appeal and testing of your home’s functionality of major systems.
Often times when buying a home a mortgage lender may require an inspection of the home to make sure things like the foundation, garage, electrical system, attic, roof, and other items are in working order.
☑️Related: How to Increase the Value of Your Home!
Do lenders request appraisals or inspections?
Lenders are fixated on protecting their investment in real estate to avoid financing a loan amount that exceeds the property’s worth, so most of them will require appraisals to approve financing.
However, home inspections are typically not required when lenders provide conventional financing. However, when a FHA (federal housing administration) or VA loan are used, they are generally required.
What happens during the home appraisal process?
In the appraisal process, a licensed appraiser, a real estate professional, evaluates the home you are looking to move to in person and in return, provides an estimated value of the home (appraised value). Chosen by the lender, typically paid for by the home buyer. While size and location can be variables, it takes about more or less an hour and on average, $400.
Here are three core points of an appraisal report:
1. Property Assessment
Home walkthrough, noting condition and quality, light home inspection. An appraised value is based on other conditions like the surrounding market, but the appraiser needs to look at the home to ensure it is not in terrible condition, etc.
2. Comparing Sales to Similar, Nearby Homes
After reviewing findings, your home/the home is compared to other recently sold homes to establish fair market value.
3. Final Report
A fair price is delivered from the home utilizing the first two steps. The final appraisal report will ideally be more than the asking price, which means you will be paying below fair market value. Congrats!
What happens if you get a low appraisal?
Low appraisals are given with a home worth less than the asking price. Ouch! This happens because:
- An inexperienced appraiser
- Lack of comparable home sales in your vicinity
- Bidding wars with many buyers at once
Wait, there’s a solution! While this surely can be a headache, you are more than welcome to ask the seller for a price reduction, pay the difference between what a lender if willing to finance, or contest the appraised value altogether. Always available options!
What to expect from the home inspection process?
The inspection process should begin before or as soon as the contract is signed for your new home. Some choose to hire their own licensed home inspector, sifting through online reviews or seeking a trusted one from their real estate agent beforehand. The choice is yours!
As mentioned before, the purpose of an inspection is a comprehensive review of the home’s condition. Sure, it generally takes a few hours, but ultimately an in-depth, test functionality of your home’s structure and key system is the bread and butter.
Home inspections typically include:
- HVAC system
- Appliances
- Security systems
- Electrical systems
- Plumbing/Drainage
- Roof Condition
Keep in mind not every potential issue will be found, and therefore, home buyers should discuss with the inspectors about their exclusion policy. Before, during, and after the inspection, the inspector will guide you on red flags and best practices, especially in a written inspection report at the end.
Home buyers can use this report to request repairs from the seller if need be. While size and location make the final number variable, inspections generally cost between $250-$700.
What’s the verdict?
The home-buying journey comes with every twist and turn you can think of; however, it doesn’t have to be more complex than it has to be! Home inspections and appraisals are key to giving you insight into the viability of your next dream home, and by taking small steps to assess its estimated value and the property’s condition is not hard to understand at all.
If you have any questions and need a home inspection or appraisal, feel free to reach out for a professional opinion!
