Whether you’re a home buyer or seller, it’s easy to confuse a home appraisal and a home inspection. After all, both involve a professional visiting your home and assessing the property.
However, there are important differences between an appraisal and inspection, including the purpose of the visit itself. In short: an appraisal helps you gain insight how much a house is worthwhile an inspection helps you understand its condition. Here we list some of the key differences between a home appraisal and a home inspection.
What is a home appraisal?
An appraisal is a process used to assess the value of a home. If the home buyer is seeking financing for the purchase, the bank or mortgage lender will usually require that the property be appraised. This ensures that the property is not worth less than the amount of the loan – a risk that no lender would like to take.
During a home appraisalan appraiser will go through the home you want to purchase to assess the property’s features (such as the number of bedrooms and bathrooms), as well as any improvements or renovations that could have affected its value. The appraiser also looks at comparable homes in your area, or compto compare with what other similar homes have sold for, and can also take into account details about the overall neighborhood.
Based on this information, the appraiser then draws up a valuation report containing an estimate of the current market value of the home. The lender then uses this amount to determine the amount of the loan it will approve. Generally, you won’t get a mortgage for more than 80 percent of the appraised value of the property. If the appraisal is low – that is, if the appraised amount is lower than the loan amount – then this is the case assessment gap will have to be made good by the buyer, otherwise the deal could even be derailed.
Usually the buyer pays the appraisal costswhich is usually somewhere between $300 and $400 and is paid as part of the transaction closing costs.
When is an appraisal necessary?
If you’re financing the purchase of your home, an appraisal is almost certainly required: mortgage lenders typically insist on an independent appraisal to confirm a property’s value before approving financing. Some lenders also require one appraisal for a refinancing.
What is a home inspection?
A home inspection involves a professional inspector – often one licensed or certified by the state – visiting the home and thoroughly assessing its condition. The inspector does not look at the value of the home, but at its physical condition. Inspectors examine the home for any damages, dangers or other problems, whether existing or possibly arising. They usually look at the HVAC and other major home systems, as well as the basement, attic, crawl spaces, and look at both the roof and foundation.
Although the buyer does not technically need to be present for the home inspection, attendance can be helpful. The inspector can do that discuss each part of the house with you and explain the severity of any problems that arise. This is also an opportunity for you to ask questions about anything you are concerned about.
This process may take a few hours or longer depending on the size, age and condition of the home. The inspector will then prepare a written report, giving his opinion of the property and noting any damage. A home inspection unpredictability is often included in the deal’s purchase agreement, meaning the purchase is contingent on the inspection findings. For example, if major structural problems are revealed, the buyer can request a reduction in the home price or ask that the seller pay for the repairs – and he/she may have the right to back from the purchase absolutely.
When is a home inspection necessary?
Home inspections are not usually required by lenders. But they are extremely useful in helping the home buyer fully understand the condition of the home, as well as the likelihood of any future problems, before the sale is finalized.
In most cases, the buyer or his agent will be the one to hire the inspector and schedule the visit. The buyer in general pays for the inspectionwhich will cost about the same as an appraisal: about $300 to $400.
Assessment vs Inspection: Key Differences
Both processes involve a skilled professional examining a home before it changes hands, and both can reveal potential problems that could affect the sale. They also cost about the same amount. But home appraisals and home inspections have very big differences:
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Goal: The purpose of an appraisal is to determine the monetary value of a home. This can be influenced by its condition, but also depends on factors such as the local real estate market and comparable properties nearby. While a home inspection focuses exclusively on the condition of the home, so that it is in good condition and can be occupied safely.
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What is being considered: Appraisers will consider factors beyond just the house and grounds, including the neighborhood, surrounding area and what nearby homes have sold for. However, an inspector only looks at the building, its functionality and safety.
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Who is present: A home appraisal is typically conducted without the buyer or seller present, with the appraiser disclosing their findings to both parties and the lender once their report is complete. In contrast, the buyer is often encouraged to walk through the home with the inspector so he can ask questions and understand any problems.
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Who is affected: Appraisals occur primarily between a buyer and the buyer’s lender – their main purpose is to reduce the lender’s risk in relation to the loan amount – while home inspections occur primarily between the buyer and the seller. However, both services can have a potential effect on the final sales price of the house, so in that sense all three parties can potentially be affected.
How salespeople can prepare for both
If you are selling your home, you can take some proactive steps to ensure a smooth appraisal and inspection of your home. Both are important if you want to close relatively quickly and easily.
Ideally, you want the inspection to not reveal any issues that could cause problems on the way to the closing table. To prepare, consider doing any repair work you already know needs to be done. It is also helpful to provide copies of all relevant paperwork for the inspector to refer to, and to ensure that he or she has easy access to areas that need to be evaluated, such as crawl spaces and electrical boxes.
Before the appraisal, you can make sure that your home itself is performing well, even though you have no control over external factors such as your local ratings and market conditions. If you’ve made any upgrades during your time there, such as a kitchen renovation or an addition, make sure you have paperwork and permits on hand. Also ensure that the lawn and any trees on the property are clean and tidy, and that the interior is clean and well maintained.
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