The Difference Between Home Inspection and Appraisal
When buying a home or selling a home, one of the most important steps is getting a property inspection and an appraisal. Buyers frequently use both terms interchangeably as they are both important for guaranteeing that the buyer is making a wise financial investment. However, both processes serve their purpose in determining the value of the asset. Different home loans have varying requirements; however, one thing in common is the expert opinion that both an appraisal and an inspection is done before closing.
What is an Appraisal?
An appraisal is an inspection of the property and a comparison with other similar properties to determine its market value. The appraiser will do this by examining both the interior and the exterior of the property. They will take measurements of the property and take notes about the community's general features, including location, upkeep, and density.
Inside the home, the appraiser will ensure that the amount of bedrooms and bathrooms matches the reported amount on the listing. They will also make general inspections of the property's heating and cooling systems to ensure they work properly. The appraiser will then make recommendations about upgrades that could be done to the property to improve its value.
The final step in the appraisal process is the final report's production, including all of the information the appraiser has gathered. This report will determine the home's fair market value compared to other similar properties sold around the same area. In a perfect setting, the property's value will come back at the agreed-upon sales price, which will further guarantee that the lender will approve the loan.
Getting an appraisal done on a property will usually cost around $400, depending on the home's size and location. Lenders require appraisals to move forward with the home buying or selling process. They will use the information gathered to feel confident enough to approve the financing of the property. In addition, getting the appraisal done will help lenders ensure that the loan does not exceed the property's value, further protecting their investment.
What is an Inspection?
Unlike an appraisal, a home inspection will solely focus on the property itself and will inspect its condition inside and out. An inspector will spend several hours on the property and examine every single part of the property. Inspections will look at hazards, damage, and other issues that might affect the buyer's investment worth.
The process involves the inspector accessing every nook and cranny in the home covering places like attics, crawl spaces, water heaters, foundations, and furnaces. The more in-depth look will inspect things like plumbing, roof condition, foundation, drainage, water damage, appliances, and mold. It is essential to note that issues might be missed until after closing since there is only so much that can be inspected without looking through walls.
Unlike an appraiser, an inspector's sole purpose is to determine any potential issues with the property and protect the buyer's investment. Once the inspection finishes, the inspector will discuss any problems or possible future problems with the buyer.
Performing an inspection on the property is not required by most conventional loans. However, if the applicant intends to use one of the government home loan programs like an FHA or a VA loan, an inspection is required.
When are Appraisals and Inspections NOT required?
According to real estate professionals, getting both an appraisal and an inspection is recommended when purchasing a property. However, buyers performing a cash purchase can have both the appraisal and inspection waived. Experts still recommended that both an appraisal and an inspection be done since they offer buyers and lenders peace of mind.
How are Appraisals and Inspections Similar?
Both appraisers and inspectors have a lot in common; both are licensed professionals and have extensive training. Also, they are impartial third parties and are not paid any commission on the sale of the property, meaning that they have no vested interest in whether the sale happens or not.
The results from both the inspection and the appraisal give the borrower more negotiating power to find a deal that works best for them. The buyer can address any issues that arise or back out of the contract without losing substantial money.
Phil Georgiades is the CLS for FedHome Loan Centers, a government-sponsored brokerage specializing in first-time buyer home loans. With more than 22 years of experience working in real estate, his team of real estate experts can help you apply for a house loan. Just give us a call at (877) 432-5626.