Home appraisals and home inspections sound similar, but both are performed for different reasons. This article will explain the difference between the two and why understanding both is critical when buying a home and obtaining a mortgage.
A home inspection
A home inspection is a thorough review of the physical aspects and condition of a home by a professional home inspector. This inspection should be completed before closing so that any needed repairs or changes can be identified. A licensed home inspector will walk through the home to see if all the major systems are functioning well or if they will need to be repaired by the owner. Some of the major systems the inspector will be looking at include:
- Plumbing
- Foundation
- Appliances
- The Roof
- Water Damage & Mold
Inspecting all these systems should take around three to four hours, resulting in an in-depth report of the home’s condition.
The home inspection is done on behalf of the home buyer, and it guides them in their decision to move forward with the purchase and mortgage loan process. Often, the realtor will add a caveat to the purchase and sales agreement stating that the sale is subject to the home inspection and financing. If the home inspection uncovers structural damage or problems that require significant investment to repair, the buyers may want to renegotiate the sales price or back out of the deal altogether. The home buyer pays for the home inspection.
A home appraisal
An appraisal is a professional unbiased opinion of a home’s value determined by a qualified licensed appraiser. The value may be based on replacement cost, the sales of comparable properties, or the property’s ability to produce income. A licensed appraiser will examine the home inside and out to determine its assessed value. It is essential to mention that some processes have changed due to COVID. Appraisers look at other comparable homes in the neighborhood that have sold within the last 12 months. They will also consider the features and location of the property.
Appraisers look for a variety of details, according to the Uniform Residential Appraisal Report form:
- The property’s dimensions and the year it was built.
- Neighborhood characteristics, including zoning classification
- Construction details: type of foundation, a basement or attic, kind of driveway, car storage, materials of the interior walls and floors
- Utilities and amenities: public utilities or other off-site improvements (and whether these are typical for the market area), fireplace or patio, features such as energy-efficient appliances, types of plumbing, and lighting fixtures
- General condition and any needed repairs
The lender is very interested in the appraisal results because the home is collateral for the mortgage. If the appraisal comes in below the sales price, this can be a game-changer. All is not lost. If you are working with a great loan officer, they should advise you on disputing the appraisers’ findings.
Why do I need both?
Both appraisals and home inspections are essential. Whether a first-time homebuyer or a more experienced buyer, any buyer should understand that inspections are conducted to evaluate the home’s mechanics and structure. Appraisals are done to determine the value of the home. They seem alike but serve different purposes.
For more information or any questions about home inspections, appraisals, or the home loan process, contact one of our experienced loan officers.
