The Difference Between Home Inspections and Appraisals

The home buying process is full of industry jargon and services you didn’t know existed. It’s no wonder that so many people confuse home appraisals and home inspections. Though they both involve an expert visiting the property and examining the home, inspections and appraisals are quite different. Understanding how they differ and why they’re necessary can give you a new appreciation for the process!

Home Inspections

To begin the home inspection process, you’ll first need to make an offer on a home and have it accepted. The seller’s acceptance marks the beginning of the due diligence period. Lasting anywhere between 14 and 30 days on average, these are the weeks between an offer being accepted and a new owner closing on the home. It’s up to the lender, the prospective buyer and their realtor to investigate any and all reasons why buying a particular property is risky.

The due diligence period is when most home inspections are performed. Buyers do the hiring here – ask your friends, colleagues and family members for referrals. While some realtors may offer suggestions, most homebuyers opt to select their own inspectors. The price of a home inspection counts towards the overall closing costs associated with the sale of the property.

Home Appraisals

Appraisers, like home inspectors, are neutral experts who provide insight into a home’s value. Rather than being hired by the buyer, though, appraisers are selected by the mortgage lender via a third party. Appraisers are objective in their determination of a home’s value and can no longer directly communicate with the lender. Like home inspectors, they do their walkthrough examinations during the due diligence period.

Appraisal information is owned by the party who ordered it. Lenders may or may not opt to share information about the home’s appraisal or valuation. Since buyers are ultimately the ones paying for the appraisal, though, lenders are typically willing to clue all parties into the report. Ultimately, mortgage holders are required to share the report with the final buyer of the home.

Appraisals are only valid for six months. At the end of that window, home prices will have shifted enough to warrant a new valuation. In particularly busy markets, lenders will have homes appraised every three months to ensure that the valuation is accurate.

Understanding the Differences

Real estate appraisers walk through a home with an eye for value. Their mission? To confirm information on file for the home, like the physical address and the number of bathrooms. They’ll also look around for any obvious defects or issues that could impact the value of the house. Though it is just one aspect of the property valuation process, a real estate appraiser’s walkthrough helps to verify the fair market value of the property.

Home inspections are much more comprehensive. These appointments can last two to three hours, allowing professionals to examine every inch of a home for defects and damages. Home inspectors sometimes uncover information that impacts the valuation of a property, but they’re mostly around to help buyers understand risks associated with the home. The detailed inspection report delivered to prospective buyers can seriously impact the sale of the property.

Appraisal Reports vs. Inspection Reports

Appraisers also prepare written reports of their findings. In addition to notes from their walkthrough, appraisers will aggregate data from sales of nearby homes. These comparable properties – known as “comps” in the industry – help determine the ultimate value of a home. The appraisal report is mainly used by the bank to determine whether or not extending a mortgage is indeed a safe investment. If an asking price is higher than the appraised value of a home, for instance, they may choose not to extend financing to the buyer. Homes serve as collateral for mortgage loans, so it makes sense to align the loan with the appraisal.

Home inspection reports, on the other hand, offer more up-close-and-personal insight into a property. The appraiser may note the number of bathrooms in the home, but a property inspector will detail the leaky sink in the master and warn of the ventilation issues when the shower is in use. Typically, buyers work much more closely with the inspector and use their findings more frequently.

Should a buyer, lender or seller disagree with the findings in a home inspection or appraisal report, the results can be challenged. Look to your realtor for guidance in this situation – they can discuss your concerns and ask questions about why certain decisions were made. Though rare, second opinions are also an option. Appraisals and inspections can be done as many times as the buyer is willing to pay for them – and as long as a seller consents.

More Alike than Different

Ultimately, home inspections and appraisals both help buyers and lenders understand the condition and value of a property. Inspectors and appraisers are impartial, unbiased professionals who do not receive a commission based on the sale of the home. This neutrality allows both you and your lender to rest easy knowing exactly what you’re taking on. Essential to the home buying process, inspections and appraisals bring ultimate peace of mind to prospective homeowners.

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