Purchasing a new home can be confusing, especially if you’re trying to evaluate the home and its value for the first time.
In this article, we’ll examine the differences between a home inspection vs appraisal.
Buying a home can be more than a little nerve-wracking, especially if it’s your first time.
Between getting approval from a mortgage lender to finding a trustworthy real estate agent, you’re likely filled with questions about the homebuying process: What is my loan amount? Does the home have enough square footage? What will my commute be like?
You may also find yourself wondering whether you should schedule a home inspection or require a professional appraisal before buying. Perhaps you don’t know the difference between the two.
There is quite a large difference between a home inspection and appraisal, even though both are crucial when evaluating similar homes during the real estate process. In this article, we’ll explore why each one is important and how they fit into the real estate transaction process.
What Is a Home Inspection?
A home inspection is arguably one of the most important milestones in the real estate process.
During an inspection, a licensed home inspector carefully evaluates the home’s structure, electrical systems, and overall condition to provide peace of mind for buyers.
A typical Buyer/Seller inspection looks and things such as the home’s structure, plumbing and electrical systems, roof, and appliances (such as the HVAC system, hot water heater, and kitchen appliances). It may include ancillary inspections such as mold, wood destroying organisms (termite), or pools.
Your home inspector will also evaluate the home for potential issues, such as a lawn that slopes toward the foundation or a roof near the end of its lifespan, which could impact the sales price or require repairs.
The end result is a detailed inspection report listing all of the known issues with the home. This report comes in handy to buyers, as they can negotiate the sale price based on any issues that were discovered. They can either inform the seller that they will not move forward with the sale unless a particular issue is fixed or ask that the seller lower the price so the issues can be fixed by a professional after closing.
While home buyers are not legally required to get an inspection, most do so because they don’t want to unknowingly purchase a home with major issues. However, if a buyer does opt for a home inspection, the seller is required to comply (i.e. allowing the inspector inside the home).
What Is a Home Appraisal?
A home appraisal is typically required by mortgage companies. Before they issue a large loan amount, they want to verify the home’s value. The last thing they want is to loan out more than the home is worth.
Therefore, an appraisal is a professional appraisal that determines the home’s appraised value based on various factors. Several different methods are used to calculate a home’s value.
First, an appraisal considers the technical characteristics of your home, things like the number of bedrooms, the location, and square footage.
Once the baseline has been established, there will be an on-site visit to the home. Here, a licensed appraiser tours your home looking for “upward” and “downward” adjustments. For example, adding a deck or pool will increase the value of your home. Things like a broken water heater or a 15-year-old roof will decrease it.
The end result is a final appraisal report delivered to all stakeholders, often required by lenders to approve the loan. This report is a critical milestone on the financing side of real estate.
Key Differences Between Home Inspections and Appraisals
If you’re debating between a home inspection and an appraisal, understanding the key differences is essential to navigating the homebuying process with confidence. Both services are critical, but they serve very distinct purposes:
- Purpose: A home inspection evaluates the home’s structure and systems, such as the roof, electrical systems, plumbing, and HVAC, to identify potential problems or safety issues. On the other hand, an appraisal determines the home’s appraised value, which lenders require to ensure the property is worth the loan amount.
- Who Benefits: Home inspections are designed to protect buyers, providing peace of mind before they commit to a purchase. Appraisals, however, benefit both buyers and lenders, ensuring the sales price aligns with the market value.
- Who Orders It: Buyers usually hire their own licensed home inspector, giving them control over the process. Appraisals are typically ordered by lenders, who select a licensed appraiser to perform the assessment.
- Impact on the Sale: The inspection report gives buyers leverage in negotiating the sales price or requesting repairs, while the appraisal report determines whether the loan will move forward.
By understanding these key differences, you can better prepare for your homebuying journey and ensure that both the home’s condition and value meet your expectations.
Home Inspection vs Appraisal: Which One Do You Need?
When looking at a home inspection vs appraisal, there are some similarities. Both are professional examinations of a home completed by professionals for the purpose of completing a real estate transaction. Further, both can give you important data buyers can use when negotiating the sale price of their new home.
The difference lies in the experience, background, and knowledge of the professional person or company doing the work.
Home inspectors are well-versed in how well a home is constructed and how it will function day-to-day. Some (but not all) inspectors might even have a background in construction or engineering. Further, home inspectors can be useful throughout your time in a home, not just during the sale. Wind mitigation inspections and 4-point home inspections are common requests from homeowners looking to save money on their home insurance premiums.
Licensed appraisers, on the other hand, are concerned with the home’s appraised value, not its function, except where it impacts the home’s size or condition. Appraisers are more likely to have a background in real estate or mortgage lending. Homeowners can choose to have their home appraised for insurance purposes (that is, not for a real estate transaction) so they can reexamine their coverage limits and other policy details.
Another difference between home inspectors and appraisers is that buyers may hire any home inspector they choose, while an appraiser is chosen for them.
Making Confident Decisions in Your Homebuying Journey
At the end of the day, both the appraisal and inspection are crucial milestones in your home sale. The appraisal ensures that you pay market value, while an inspection identifies potential problems with the home.
When it comes to the home inspection vs appraisal showdown, there’s no standout winner. However, the longer you plan to stay in your home, the more important it is that you get a home inspection.
If you’re in love with a home (and plan to own it for many years), you’ll want to have as accurate a picture as possible of the home’s condition. After all, there’s no “Lemon Law” or return policies when it comes to real estate; once you close on a property, you are completely responsible for it.
Getting a thorough, accurate home inspection will give you the valuable information you need to buy your Dream Home with the utmost confidence.
Whether you’re looking for a “move-in ready” home or a fixer-upper, EDC Professional Home Inspections can help. Owned by Master Inspector Erik Coplin, our process is backed by a 100-day guarantee, so you have nothing to fear.
Contact us today to schedule your inspection.