One of the most significant expenses or investments that people engage in is acquiring a home. As such, they do not want to give room for any mistake. With the right house, buyers are sure of the future of their financial investments. However, buying the wrong home could be the beginning of unpleasant surprises and financial woes.
Buyers now understand that they should lookout for the best price and quality of the house they are buying. For this reason, home inspection becomes an integral part of the home buying process, explains Windermere Management. Despite this, most homebuyers do not know about the home appraisal process. They think it is the same thing as a home inspection with a different name. But that assumption is not correct.
The only similarity between a home inspection and home appraisal is that both of them occur before the home buying, and they help the buyer to get the best value for their money. Home inspection and home appraisal are two different things, however, they are complementary. Below, we explain how they differ.
What is an appraisal?
The purpose of an appraisal is to check and verify the house’s condition in order to estimate a fair sale price for the property. During the appraisal process, there will be a survey of the size of the land that the property occupies, the square footage of the house, the number of bedrooms and bathrooms in the home, etc. An appraiser evaluates the home considering its location, condition, and value of similar houses.
As part of the appraisal, the appraiser analyzes the price of similar properties recently sold in the area. A combination of all these determines the property’s estimated market value that the appraiser will finally report to all the parties: the lender, the buyer, and the seller.
What is an inspection?
A home inspection is a well-detailed physical examination of a house’s systems and structures to ascertain its actual condition. The process aims to expose underlying problems that buyers need to know. The inspection consists of a checklist of over 1600 items that serve as a guide from the roof to the foundation.
It includes all the visible structures, the attic, roof, heating system, air conditioning systems, electrical system, interior plumbing, basement, and foundation. The report identifies and rates the issues according to the severity level. Thus, you will be able to know which problem is major or minor and which one requires repairs or replacements.
The home inspector presents the report to the ordering party, the buyer, agent, or seller. Depending on the report, the buyer can either negotiate the home’s price or terminate the offer.
The difference between an inspection and an appraisal
The purpose of an appraisal is to estimate the actual value of the home. Lenders need to know that the property is not overvalued because it will serve as collateral for the loan. If the borrower defaults, it will be easy to recover the money through the sale of the house.
The purpose of a home inspection is to determine the home’s true condition so that buyers can assess the risk of buying the house.
A home appraisal is a requirement by lenders as a part of the mortgage process. The lender orders it on behalf of the buyer, but the appraiser works for the lender.
A home inspection is a voluntary process at the buyer’s request, and the home inspector works for the buyer. Sometimes the inspector could work for the seller when the seller orders a home inspection before listing the property for sale.
The home appraisal takes a short time, and the appraiser walks through the house while making measurements and assessments. An inspection is a tedious process that can last as long as three hours.
- Impact on loan
The outcome of an appraisal determines the amount of money that the borrower can get. A home inspection doesn’t have any impact on the loan amount.
During the appraisal process, appraisers do not permit buyers to stay around. But during a home inspection, buyers need to be around. It is an opportunity to ask questions and interact with the inspectors about any issue on the property.
An appraisal makes conclusions using happenings in the neighborhood, whereas an inspection doesn’t extend beyond the property’s boundaries.
An appraisal prevents you from overpaying for a home. With an appraisal, you can renegotiate the price of a house with the seller, and you wouldn’t also pay excessive taxes on the property. An inspection allows you to know the real state of the property you intend to buy. It makes you confident about the purchase. Where you notice significant problems, you can request repairs, renegotiate the price to cover for repairs, or walk away.
The bottom line
Home inspections and appraisals differ in terms of purpose, scope, origin, impact on loan, involvement, benefits, etc. Knowing the difference will help you to apply each of them accordingly.