Whether you're a homebuyer or seller, it's easy to confuse a home appraisal and a home inspection. After all, both involve a professional visiting your home, and they're technically both a type of inspection. However, there are a few key differences between an appraisal versus an inspection, including what happens when the appraiser or inspector visits, and the purpose of the visit itself.
Appraisal vs. home inspection: What's the difference?
In a real estate transaction, home appraisals and inspections benefit the homebuyer, home seller and the mortgage lender as far as ensuring the home is worth its price and that it's safe to live in. Both services can uncover potential issues that may affect the home sale, in turn helping the buyer decide to either move forward with or walk away from the purchase.
The cost of an appraisal versus an inspection is also generally within the same range: from $300 to $450 or more, depending on the home's size and any special circumstances.
That's where the similarities end. That's because the purpose of an appraisal is to determine the value of a home, which can be impacted by the kind of condition it's in, whereas a home inspection evaluates that condition, and includes a look at the home's major components.
An appraisal is typically done without the presence of the buyer or seller, with the appraiser revealing 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 during an inspection so that they can ask questions and have the inspector explain any issues.
When is an appraisal required?
Lenders generally require a home appraisal in order to approve financing for a mortgage. This is to ensure that they're not originating a loan that's too risky - in other words, that the home isn't worth less than its sale price.
Some lenders also require an appraisal for a refinance, which helps them not only gauge their risk, but also helps the borrower leverage their equity appropriately.
When is a home inspection required?
Home inspections aren't usually required by lenders, but they're strongly recommended so that the homebuyer fully understands the home's current condition, and knows the likelihood of any future issues before closing.
Even though there isn't a requirement from the lender, an inspection contingency is typically included in the purchase agreement. If there are major structural issues, for example, the buyer will then have the right to back out of the purchase.
An inspection is also useful for buyers when negotiating with the seller should there be any repairs needed.
What buyers can expect
During a home appraisal, the appraiser may conduct a walkthrough of the home you're looking to buy to assess the features of the property (such as number of bedrooms and bathrooms) and any improvements that could have affected its value.
To determine the value of the home, the appraiser may look at comparable properties, or comps, which are usually similar homes in the area that have sold within the last 90 days.
Using this information, the appraiser will then complete an appraisal report with their estimate of the home's current market value.
While a home inspection doesn't require you to be there during, it's highly encouraged since you'll be able to take a closer look at the home you're considering.
In most cases, you or your real estate agent will be the one to hire the inspector and schedule a time for the inspection to take place.
The inspector will examine the home for any damage, hazards or other issues, usually taking time to look at the HVAC and other major home systems. Sometimes, the inspector will access the attic or crawl spaces and look at the foundation. The inspector might also address each area of the home with you and explain the severity of any issues that crop up.
This process can take a few hours to complete or more, depending on the scope of the project. Once the inspection is complete, a final report will be drafted for your review.
How to prepare as a seller
If you're selling your home, you can take a few proactive steps to ensure a smooth home appraisal and inspection.
For the inspection, ensure that the inspector has easy access to areas and features like a crawl space and your HVAC system. It’s a good idea to clean up your attic or basement and any large appliances, too, and keep your utilities on.
You might also consider completing minor repairs to avoid any snags when negotiating an offer, and leaving any relevant paperwork out for the inspector to reference during their visit.
As for the appraisal, much of the same applies, plus any paperwork or permits showing upgrades done to your home. It can also pay off to clean both your home’s interior and exterior.
If you have any additional questions please contact an O'Brien agent today. Office Tel: 301-863-2400 website: www.Obrienrealty.com