When you invest in something, you likely want to make sure you get a return on it. The rules are simple: maximize your reward and minimize any potential risk. A home is one of the biggest investments you’ll make in your life, so it’s a no brainer to make sure you’re doing everything you can to ensure a return on investment while reducing your risk. Wouldn’t it be great if you could do this before you even purchase your home? Here’s the good news: you can. And you do that by getting an appraisal and home inspection.
Contrary to what you may have heard, appraisals and inspections are not the same. While both services include assessing the property, they’re doing so for completely different reasons and to benefit the homeowner in completely different ways. Read on to better understand how appraisals and inspections differ and how each one can help you as a home buyer.
What Is An Appraisal?
An appraisal is a process required for almost all mortgage loans that’s used to determine the estimated market value of a home. To determine the value, a third-party appraiser factors in the home’s location, its condition and the value of similar recently sold houses in the area. These are also known as comparables. The appraisal process includes walking through the home, researching comparables and creating a final appraisal report. This report will provide the final determination of the home’s market value and will be used in the lender’s final decision to approve the loan amount. The lender typically cannot lend more than 97% of the appraised value of the home, so ifthe appraisal comes back lower than the offer price you’ll have to pay the difference out of pocket, renegotiatewith the seller or walk away from the deal. If the appraisal comes back higher than the offer price, you’ll automatically have more equity in the home.
What’s A Home Inspection?
A home inspection is a thorough examination of a home to determine its present condition and uncover any potential red flags. During the inspection process, a home inspector will examine the structure, roof, attic, basement, electrical system, plumbing, exterior and other items on their inspection checklist. If you’re present during the inspection, the inspector will take you through the process, point out issues and reveal anything that could be a problem in the future.
After the inspection, you’ll receive a report of the findings. This report will describe what was inspected and list anything that requires repair. Based on these findings, you may want to negotiate with the seller to have them complete the repairs or pay for part (or all) of the repair costs.
What’s The Difference Between A Home Appraisal And Inspection?
Plain and simple, a home appraisal determines the value of the home while a home inspection determines the condition of the home. And since each serves a different purpose, there are a few other differences between an appraisal and inspection:
- Home appraisals are required by a lender. Home inspections aren’t.
- You must set up an inspection yourself while the lender will order an appraisal for you.
- An appraisal may impact your ability to get the loan amount you need. An inspection won’t.
- Appraisers typically only spot things visible to the naked eye, whereas inspectors use special devices and training to spot deeper issues.
- Home buyers are allowed and encouraged to walk through the home with the inspector during the inspection. Typically, an appraiser will go through the appraisal process alone.
- An inspector will explain and educate during the interactive process. An appraiser won’t tell you their findings until they complete their report.
- A home inspection only examines the condition of the home when making the assessment. A home appraisal considers the condition of the home, comparable home prices, lot size, home features, area crime rates and school zones.
- The inspector and appraiser have a different set of skills, are trained and certified in different processes and have different areas of expertise.
What Do Home Appraisals And Home Inspections Have In Common?
While they have different processes and serve a different purpose, appraisals and inspections do have a few things in common. For one, they both benefit the homeowner and the lender because they ensure the home is worth what you’re paying for it and that it’s safe to live in. Both will also uncover any issues that may affect the sale as well as help you feel secure in your decision to either purchase the home or walk away from the deal. Furthermore, since these services are completed by a third-party professional who has nothing to gain or lose from the results, you can feel confident in their findings.
Another thing they have in common is that the homeowner is the one who must pay for the service. That may seem unfair, but both services are worth it. And while it may be more expensive, it’s recommended that you get both an appraisal and an inspection.
Why Should You Get An Appraisal And An Inspection?
The home assessment that happens during the appraisal should never be used in place of a home inspection. An appraiser seeks to find the value of the home, so their inspection will be different from that of an inspector who seeks to find issues with the home. They’ll be looking for different things as they walk through the home. The inspection that happens during the appraisal process will not be as in-depth as a separate home inspection. As the potential homeowner, it’s in your best interest to get an inspection along with your appraisal. Here’s why.
Benefits Of An Appraisal
Just because it’s required doesn’t mean you can’t take advantage of this service. Here’s how an appraisal will benefit you:
- It helps you get approved for a mortgage.
- It ensures you’re not paying more for the home than what it’s worth.
- It provides a reason to drop the sale price of the home if the appraisal comes in low.
- It ensures you pay the right amount of property taxes.
Benefits Of An Inspection
An appraisal is a requirement of a mortgage because it’s in the best interest of the lender to get it done. An inspection should be a requirement for you to buy the home because it’s in your best interest to get it done. Here’s how you can benefit from this service:
- It can help you protect your investment and reduce any potential risks.
- It will help you determine whether you should buy the home and then make you feel confident in your decision.
- It will help you feel safe and comfortable living in the home.
- It will provide a better understanding of your home’s condition.
- You’ll learn more about the intricacies of your home.
- If you’re building your home, it will ensure proper construction was completed.
- It can provide you leverage when negotiating with the seller.
Choosing The Right Inspector
A home inspection won’t be as great of a benefit to you if you hire the wrong person for the job. When hiring an inspector, get recommendations from your real estate agent, family members or friends.
Once you get a name, do your research on the inspector and their company by asking for references and checking out online reviews. You want to work with someone who’s certified, insured and won’t be influenced in their examination. That means you don’t want to hire someone who also does repairs and renovations as they may make recommendations based on future business they could get from you. If you can, make sure to attend the inspection so you can ensure you’re getting a thorough inspection, learn more about the home and ask the inspector questions as you walk through the house.
Appraisal And Inspection Costs
While these services are invaluable for home buyers, they do come with a cost. According to HomeAdvisor, you can expect to pay between $300 – $400 for an appraisal and between $270 – $400 for an inspection. Of course, the prices for either service may go up if you have a larger home, a multi-unit home or a complex property. The same goes for an inspection, where the cost may vary depending on the size of the home, its location or any extra home features you want inspected.
Is It Really Appraisal Vs. Inspection?
While the title of this article is “Appraisal Vs. Home Inspection,” they aren’t competing entities. Both of these services can work together to protect you and ensure the large investment you’re making is a good one. That’s why it’s recommended you get both completed when you’re going through the home buying process.
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