Whether you’re thinking about buying a home or selling your home, it is important to understand the difference between a home appraisal and home inspection. Buyers and sellers who believe that an appraisal and inspection are the same, end up being surprised when they are informed that both are different.
Let us now take a look at some of the key differences between an appraisal and an inspection:
It is an unbiased, professional opinion of a home’s value which is completed by an appraiser. Appraisals are performed in real estate transactions when a buyer is taking benefit of financing through a financial institution and usually when a homeowner is attempting to refinance their mortgage.
Its primary purpose is to ensure that the sale price which a buyer and seller have agreed upon is not more than the current market value of the home. An appraiser ensures that the contract price is appropriate given a home’s features, condition, and location. If a buyer defaults on their mortgage, the bank completes the appraisal to ensure that they can recoup the money they lent to the borrower.
When buying or selling a home, it is crucial to understand some common appraisal issues that can arise. Being aware of common appraisal issues such as a home appraising for less than the agreed upon sale price can help to reduce additional frustration.
The biggest differences between an appraisal and home inspection are who the professional works for and the general focus. An appraisal provides valuable information for a buyer or seller. An inspector works for the buyer, educating them on the condition of the home and alerting them to potential problems.
When purchasing a home, you aren’t just buying that beautiful master retreat or an amazing kitchen, you’re also buying any problems that lurk behind the walls or in the attic. A professional inspection is a must for being informed and educated about the home. The most common inspection performed by a buyer is the general inspection of the home by a general contractor, a licensed home inspector or other buyer representatives.
As per the American Society of Home Inspectors (ASHI), “Inspection is an objective visual examination of the physical structure and the systems of a house, from the roof to the foundation. A standard inspection report covers the central air conditioning system (temperature permitting), the condition of the home’s heating system, the roof, attic and visible insulation, interior plumbing and electrical systems, the foundation, basement and structural components and walls, floors, ceilings, windows, and doors.” Savvy buyers incorporate an inspection contingency in their offer which allows them to reopen negotiations or walk away from the deal altogether in case they aren’t happy with the results.
According to the Certified Residential Appraiser and owner of LSB Appraisal Services, LLC, Lanny S Brunette, “Buyers should keep in mind that every inspection will reveal some sort of issue. No matter if the home is older or brand new; there will likely be some flaw or repair which pops up. After receiving the detailed findings, you and your realtor can evaluate whether you need to negotiate with the seller, the problems are deal breakers, or simply items you need to keep in mind for the future.”
Brunette says, “While inspectors do a much more thorough examination of a home’s structure and components, most professional appraisers will note any potential problems especially if the buyer is using a mortgage backed by the Federal Housing Administration (FHA).”
As mentioned above, there is a major difference between an appraisal and an inspection. The major takeaway is that an appraisal is completed to determine the fair market value of the home, and inspections are completed to ensure that the buyer understands the ins and outs about the home they are looking to purchase. If you would like additional clarification on the differences between a home appraisal and a home inspection please feel free to contact one of our loan representatives.
PRMI NMLS 3094. PRMI is an Equal Housing Lender. Some products and services may not be available in all states. Credit and collateral are subject to approval. Terms and conditions apply. Programs, rates, terms, and conditions are subject to change and are subject to borrower(s) qualification. This is not a commitment to lend. Florida Office of Financial Regulation MLD646. Opinions expressed are solely my own and do not express the views of my employer.