The Differences Between a Home Appraisal and a Home Inspection
Introduction
There are crucial steps in the process that help ensure a smooth transaction when it comes to buying or selling a home. Two pivotal steps in the process are home inspections and home appraisals. It’s vital to understand that an appraiser doing an “inspection” is not to be confused with a home inspector doing an inspection. In this blog post, we'll delve into the differences between a home inspection and a home appraisal to shed light on their respective roles in the real estate world.
Home Inspection: Evaluating Condition and Habitability
A home inspection is a comprehensive examination of a property's condition. It is usually conducted by a licensed home inspector. Typically, a home inspection is initiated by the purchaser of a property, but sellers of a property sometimes receive inspections as well so they can be either made aware or so they can actually make repairs before hitting the market. The primary purpose of a home inspection is to identify potential issues, defects, or safety concerns within the property. It’s very important to understand that the home inspector is not a specialist in all trades related to real property, but they are licensed to inspect and report on any and every potential defect that they find. Keep in mind that even a licensed and well seasoned home inspector can still miss items on occasion. A good home inspector will point you to consult different specialists in each trade that you may need.
Structural Integrity: Inspectors evaluate the structural components of the home to the best of their abilities, including the foundation, exterior and interior walls, roof, etc.
Systems Check: They assess the functionality of essential systems such as plumbing, electrical, HVAC, appliances, etc. Sometimes due to temperature or various reasons, they are unable to test different components and should let you know the reason(s) why they were unable to test them.
Interior and Exterior Examination: From floor to ceiling and foundation to roof, inspectors thoroughly examine both the interior and exterior of the property.
Report: A very detailed report is created, outlining findings and recommendations for repairs or maintenance. They will also attach pictures to their reports and provide you with a summary at the end. They include any potential health and safety concerns and hazardous defects they may find.
Home Appraisal: Determining Market Value
Different from a home inspection, a home appraisal focuses on determining the market value of the property. Lenders require appraisals to ensure that the property's value aligns with the proposed loan amount. This is put in place to protect the purchaser, the lender, and the overall real estate economy. An appraiser, who is typically hired by the lender if the home is being financed, assesses various factors to arrive at an unbiased valuation. However, anyone can hire an appraiser for various purposes and reasons. Even a cash buyer may want an appraisal to ensure the price they are offering is appropriate to the market value.
Market Analysis: Appraisers search for recent sales of comparable properties in the area to gauge market trends. They take a much deeper dive into the data than the general population usually realizes.
Property Evaluation: For a full interior and exterior appraisal, the appraiser physically inspects the property inside and out to evaluate the property's size, condition, and unique features.
Valuation Report: A comprehensive report is generated comparing the subject property to all of its determined comparable properties, providing a professional opinion of market value based on the analysis.
Timing and Purpose
The timing of home inspections and appraisals also differs in the real estate process. Home inspections typically occur very quickly after the purchaser’s offer has been accepted. The results of the home inspection may influence the buyer's decision to proceed with the purchase, request repairs, or renegotiate the terms, or walk away.
On the other hand, a home appraisal is often ordered by the lender shortly after the buyer's offer has been accepted and the appraisal may not occur til closer to closing time than the home inspection. The purpose of the home inspection is to benefit and protect the buyer by reporting on the condition of all the components of the home so the buyer doesn’t walk in blind to a property purchase, whereas the appraisal helps ensure that the lender is not financing more than the property's actual market value. This helps the lender know that the property is a sound investment for them and also lets the buyer know that they are getting a fair price. If the appraisal comes back higher than the contract price then that’s good news for the lender and the buyer because it means even more instant equity than just the down payment that’s required is ensuring. If it comes back lower than the contract price, then the buyer can usually renegotiate the price and terms of the contract with the seller.
Conclusion
In the multiplex world of real estate, understanding the distinctions between a home inspection and a home appraisal is vital for both buyers and sellers. A thorough home inspection unveils the intricate details of a property’s condition, empowering buyers with the knowledge to make informed decisions. Simultaneously, a home appraisal ensures that the property's market value aligns with the contingent contract price of the transaction, offering a safeguard for lenders and contributing to a fair and transparent real estate process for all parties.
