Home Appraisal versus Home Inspection

The key difference between a home appraisal and a home inspection is that the appraisal is designed to protect the lender’s collateral, while a home inspection is designed to protect the buyer from maintenance issues that they weren't aware of.

Here is a more detailed description of these two steps in buying a home.

The Home Appraisal

An appraisal is required by a bank in order for you to get a mortgage. A not-so-funny trick is that the appraisal is required by the bank, but paid for by you. The appraisal is done so the bank can make sure that the home is as described and that the purchase price is comparable to other homes in the area.

The appraiser operates as an independent third party. They will come to the home to take measurements to estimate its size and take some photos. They will also look for obvious defects while they are there. Some loans have more strict requirements for inspections.

They will also visit homes that are nearby that they see as similar. They will research recent sales for homes that have a similar layout and value.

The appraiser will submit a report to the bank that lists an estimated value price. If this value price is less than the mortgage amount requested, the bank will reduce the amount of money they are willing to loan.

How to stay out of trouble with the home appraisal:

  • The first thing is to make sure that you have already done your research about home prices in the area. If the house that you are looking is unusually high priced for the neighborhood, it needs to have some significant advantages over the other houses around it.
  • The second thing to do is to do your own price comparisons. Your real estate agent can help you to find similar homes to make sure that you are paying a fair price (and therefore asking for a fair mortgage) for the area.

The Home Inspection

A licensed home inspector will perform an inspection to find items that need repairing, maintenance that needs to be done as well as any issues that may be there with the home.

As opposed to an appraisal may take 15-30 minutes and home inspection usually take over 3 hours. Nothing is off limits.

The home inspector will look at everything from the foundation to the attic. He or she will check the wood for termites, the appliances for age and wear and the windows for energy efficiency.

The goal of a home inspection is to not have any surprises. Most home inspectors are insured (hire one that is) and, if they missed something major, their insurance will pay to have it corrected.

Sometimes, during the purchasing process, you might hear the seller or the other realtor say things like, “The owner is a contractor so there’s nothing to worry about.” No matter what else you do, hire a licensed, competent home inspector to make sure you aren’t buying a money pit.

In addition to a general home inspection you may also want to hire a specialist if you have a specific concern. People like a heating company to look at the furnace, plumbers for the piping or an electrician for the wiring can save you a lot of pain and money later. Your real estate agent will have the names of people you can call.

Even though a home inspection or the help of specialists is as optional as having a mechanic look at a used car before you buy it, it is money well spent and as they say “an ounce of prevention is worth a pound of cure.”

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All information provided is deemed reliable but is not guaranteed and should be independently verified.