If you are a homebuyer or a seller dealing with a home inspection and an appraisal are just part of the process. Many people, especially first-time homebuyers find it confusing as both are technically a type of inspection and involve a professional visiting the property. However, there are some significant differences including what happens when an inspector or appraiser visits the home and the purpose behind these visits.
Read on to understand the difference between a home inspection and an appraisal and how each of them can aid you during closing.
What Is A Home Inspection?
Generally, a home inspection takes place before closing and often before the buyer commits to purchasing the home. It is performed by a qualified inspector who takes an in-depth look at the property to determine the present condition and reveal any potential red flags. He will examine the structural components like the roof, exterior, plumbing, attic, basement, and other items on the inspection checklist like the HVAC system, and kitchen appliances.
If you are present during the home inspection you can know what the inspector is looking for and ask in-depth questions to have an understanding of any issues that could be a problem in the future.
Then a detailed report will be sent to you and the seller about what was been inspected and describing any major issues or repairs that have to be done. Based on this you can hold the seller responsible for completing the repairs before moving forward with the sale or lower the price so that they can be fixed by a professional after closing. You can even walk away from the deal if there is a major issue.
What Is A Home Appraisal?
A home appraisal is a process required by almost all mortgage lenders before they approve of a mortgage to determine the home’s fair market value. They are performed by licensed appraisers who verify square footage, compare findings of real property records and check the prices of similar recently sold houses in the area (also known as comparables) among other factors like proximity to necessary facilities like schools. Then they create an appraisal report that provides the final determination of the market value of the home. The copies of the report will be sent to the lender, buyer, and seller to show the home’s value and how the calculations were arrived at.
If the home is appraised for less than the market value then the buyer will either have to ask the seller to reduce the sales price or pay the difference from his funds. However, if the appraisal comes higher than the purchase price the buyer will automatically have more equity in the home.
What Are The Similarities Between A Home Inspection And An Appraisal?
A home inspection and a home appraisal serve different purposes. However, they do have a few things in common which is why many people do not fully understand the difference.
- Both require trained professionals to examine the interior and exterior conditions of the home. But, the reasons for doing so are different.
- Both protect the buyer, seller as well as the lender as it ensures that the property is worth its price and that it is safe to live in.
- Both uncover any issues that can affect the purchase of the property and help the buyer feel secure in his decision to either purchase the home or walk away from the deal.
- The buyer is the one who usually pays for both these services.
- Both of them generally cost the same amount that is, about $300 to $500 depending on the size of the property.
- Both appraisals, as well as home inspections, are completed before closing.
How Does A Home Inspection Differ From An Appraisal?
There are a few key differences between a home inspection and an appraisal that first-time homebuyers need to understand before they plan to purchase a home.
- The home inspection deals with the condition of the home while an appraisal is used to determine the fair market value of the property.
- While mortgage lenders require a home appraisal, a home inspection is not generally mandatory. However, a home inspection protects the buyer.
- An appraisal can affect your loan approval but a home inspection will not.
- An appraiser will only identify things that are obvious whereas home inspectors use special devices and are trained to identify deeper issues.
- Homebuyers are encouraged to walk through the home with the home inspector while an appraisal usually takes place without either the buyer or seller being present.
- The home inspector will explain and educate the buyer about the issues being looked into whereas the appraiser will reveal the findings to the lender, buyer, and seller when they complete their report.
Ultimately both a home inspection and an appraisal are important milestones in the home buying process. While a home appraisal will ensure that you pay the right price for the home, the home inspection will identify any serious issues that can cause cost you in the long run.
If you have any questions on the home buying process or home loans get in touch with us today. We will be happy to answer!