Appraisal or Inspection? Which do you get? One or the other? or both? As a first time homebuyer, you may not understand the difference between the two. The answer to the question is – you get both because they are very different.
Appraisal or Inspection to Determine Condition?
If you are buying a home, an inspection is an important step in the process. It evaluates the condition of the home for you so that you can make an informed decision about whether to move forward in your purchase. Your inspector will identify major issues, such as a leaking roof or a cracked heat exchanger. Your inspector will also tell you how to maintain your home. IT IS NOT A STEP TO SKIP! An inspection also a different step in the homebuying process from an appraisal. The appraisal is a professional evaluation of the market value of the home you’d like to buy. In most cases, an appraisal is ordered by the lender to confirm or verify the value of the home prior to the bank lending the money for the purchase. In short, an appraisal helps the bank understand the home’s value and the inspection helps you understand the home’s condition. When you are considering appraisal or inspection during the home buying process, take both!
Home Inspection 101
The inspection is a way to determine the current state, safety, and condition of the home before you finalize the sale. If anything is questionable in the inspection process – like the age of the roof, the state of the HVAC system, plumbing, electrical, mold, etc. – you as a buyer have certain options – depending on your contract. Your contract will give you the options of discussing and negotiating any potential issues or repairs with the seller – or walking away – before the transaction is final.
Occasionally, a buyer wants to skip the inspection to save money. After all, the buyer figures… the bank is doing the appraisal. Surely that will catch any defects. That is not the purpose of the appraisal, and a buyer should never waive the inspection expecting the appraiser to do the inspector’s job.
Even if the property you want to buy has fourteen offers registered in the first hour, do not skip the home inspection. Ask your realtor if it is possible to do a pre-offer inspection. A “walk and talk” is exactly what it sounds like. A good inspector can walk through the home with you, checking the major systems, giving you maintenance tips, and identifying any big problems. You will not receive a written home inspection report but you can take notes and pictures for further reference – and it will cost you less. It won’t get you the right to negotiate repairs, but it will save you from buying a home that is a money pit of delayed maintenance and long overdue repairs. Be very wary if anyone tells you to skip the home inspection completely.
Appraisal 101
How do you determine the value of your property? An appraisal or inspection? When you apply for a mortgage, an unbiased appraisal (which is required by the lender) is the best way to confirm the value of the home based on the sale price. Regardless of what you’re willing to pay for a house, if you’ll be using a mortgage to fund your purchase, the appraisal will help make sure the bank doesn’t loan you more than what the home is worth.
This is especially critical in a seller’s market where low inventory drives an increase in bidding wars, which can push home prices upward. When sellers are in a strong position like this, they tend to believe they can set whatever price they want for their house under the assumption that competing buyers will be willing to pay more.
However, the lender will only allow the buyer to borrow based on the value of the home. This is what helps keep home prices in check.
An appraiser’s job is to provide an unbiased opinion about a home’s value.
Appraisers can walk through the house, research it online or do a “drive-by appraisal” to collect information for their report. These are some of the factors an appraiser will likely evaluate:
- The overall condition of the home
- The home’s square footage
- The number of bedrooms
- Available storage space
- The lot size
- Comps and the state of the market
The lender and the borrower will both receive a copy of the appraisal report. Appraisers follow a format specified by the Uniform Standards of Professional Appraisal Practice.
Doesn’t the Appraiser Do an Inspection Too?
The appraiser does not look at the house systems or particular aspects of its condition in most instances to determine whether there are repairs that are needed. The appraiser will not give you maintenance tips. For example, the roof is obviously defective, the appraiser will appraise the property with a lower value. Only in some specific instances, such as if it is a VA loan, will the appraiser make certain repair conditions as a requirement of the loan. However, in a conventional loan it is almost unheard of to have repair conditions. (I recently had a credit union loan that required the installation of a carbon monoxide detector and the seller refused. I installed the device for the buyer.) The point is…. the appraiser does not do an inspection of the property condition for you that forms the basis of negotiations with the seller. Typically the appraisal is done well after the inspection contingency period. The appraiser does not give the you an inspection report.
Bottom Line – Appraisal or Inspection?
The inspection and the appraisal are critical steps when buying a home. Your lender will not let you skip the appraisal, and you should not skip the inspection either. The two are definitely not the same.
