Homebuyers often confuse the terms home appraisal and home inspection. They are two different services with different outcomes. A home appraisal is typically required to secure mortgage financing and a home inspection is optional (but recommended).
Here’s how to distinguish between the two services.
What is a Home Appraisal?
A home appraisal is a report of the home’s condition, features, and overall value. A licensed appraiser conducts the appraisal, inspecting the inside and outside of the home, taking measurements, and noting its features.
The appraiser looks for recently sold homes in the area like the subject home to compare the price. The appraised value will be in line with the recently sold homes but adjusted for their individual features and/or condition.
What is a Home Inspection?
A home inspection is done by a licensed inspector. The inspector looks at all areas of the home, looking for specific problems. Inspectors look at major areas such as the basement, foundation, and attic. They also look for specific issues with plumbing, electricity, roofing, and any other major systems.
Inspectors look at all aspects of the home to ensure everything is in good condition and isn’t on the verge of breaking down (or already is broken down). The inspection report is usually rather lengthy because it covers everything in the home, so you know what you’re investing in if you move forward with the sale.
How are they Similar?
Both appraisals and inspections provide you with a detailed report about the property. They give you more information for you to use before you close on the sale. If you have an appraisal or inspection contingency on your contract and you don’t like what’s in the reports, you can back out of the sale with your escrow money in hand.
Appraisal and inspections are both done by licensed professionals too. It’s like having another opinion about the home aside from your real estate agent.
Finally, buyers typically pay for both the home appraisal and the home inspection unless you work out something else before signing the contract.
How are they Different?
Appraisals and inspections have many differences:
- Appraisals determine a home’s value; inspections determine the quality of the home and its condition.
- Lenders don’t require inspections, but appraisals are always required in a purchase transaction.
- Appraisals look at comparable sales in the area, whereas an inspection focuses only on the subject property.
- An appraisal can affect your loan status, an inspection typically doesn’t affect it.
If you’re buying a home, you’ll need the appraisal, but consider an inspection too. Some people pay for an inspection before they sign a contract, but if your seller is willing to add an inspection contingency to your contract, you can wait until after they accept your bid to pay for an inspection.
Both reports protect your investment in a home, ensuring it’s a safe and sound investment that won’t leave you upside down on your purchase or dumping money into a home that’s not in good condition.
Written by the Mortgage Loan Center.