Are you planning to buy a new home? The world of real estate can seem intimidating if you didn’t know the buying terms. With an investment as large as a home purchase, we understand you want to feel confident in your decisions.
The good news is that you can.
Having a home inspection and an appraisal can help you maximise investment while lowering your risks- making you confident about your home purchase. But if you’re in a dilemma if you would want a home inspection vs appraisal- we recommend both.
Contrary to what you may have heard, home inspections and appraisals aren’t the same. While home inspections point to assessing the home, they serve different purposes. Home inspection determines the quality of the home and appraisals determine the value of the home.
This blog is all about the differences between a home inspection and an appraisal so that you have a clear understanding of how to act on your real estate transactions.
Appraisals are done to determine the estimated market value for mortgage loans. This is also an independent, neutral valuation of how much a property is worth, generally, conducted in two phases by licensed providers that are outside the mortgage company.
The first phase typically involves the appraiser factoring into the home location, examining the interior and exterior of a home, analysing the home’s condition, and valuing it according to similar homes recently sold in your locality. These are known as comparable, that’s usually evaluated by general benchmark value gathered online or a drive-by appraisal. After this, the appraiser will have a general idea of what the fair price of your home is.
The next phase is understanding the desirable features and deficiencies that can add or cut the value of the home.
Desirable features include improvements on the outdoor property, location, additional bathrooms, and luxury items that are likely to increase the value of the home. Deficiencies include Drainage issues, Water damage, Lingering odors from smoking or pets, Peeling paint, or others.
After getting the final value based on findings of phases 1 and 2, the appraiser makes a final report of the home based on the market’s value. This report acts as a deciding factor for the lender about the loan. As by the rule, a lender can’t offer more than 97% of the appraised value of the home. So, if the appraisal comes at a price lower than the offer price, you’ll have to negotiate over and if the price is higher - then you tend to be on the safe side.
An appraisal serves several purposes.
It helps you get approved for a mortgage.
It ensures that you pay the right deserving amount.
It gives a clear overview of the reasons why you can drop the sale if the appraisal is low.
It helps to get a better sense of the market value of the home.
It gives you the right snapshot of the amount to be paid for property taxes.
A home inspection is an in-depth examination of your home's quality to understand its present quality and understand the potential red flags. It helps determine the longevity of your home and helps protect buyers from potential financial risks. It also helps to reveal some life hitches like mold or defective wiring that could cause a substantial fire and can provide you with leverage while negotiating the deal.
Typically, a home inspection is requested by the buyer as a contingency in the part of the offer. If approved, the buyer can hire an inspector to help determine the structure’s integrity.
A home inspection spans across Exterior, interior, roof, HVAC systems, Water, Plumbing, Radon, mold, chimneys, pesticides, wood, etc. Post-inspection, the inspector will report the findings to the buyer and the repairs and contingencies are discussed. The sale moves forward after the agreement is reached.
Home inspections are of self-interest whereas Appraisal is mandatory.
Home inspections are required for the buyer. The appraisal is required for the seller.
Appraisals impact the ability to get the loan amount. Home Inspections don’t.
Appraisals spot things with the naked eye, home inspection is done with equipment and technology.
Home inspection only determines the quality of the home. An appraisal helps determine the value, prices, lot price, area integrity, and more.
Both areas need separate skill sets, and the professionals are trained in different aspects.
Both benefit the lender and homeowner and ensure that the price they’re paying is the right amount.
Both uncover critical issues that can make or break the deal.
Both are executed by a third-party company that has nothing to do with the results.
It’s usually only the homeowners that pay for both.
The home assessment that goes with the home inspection and appraisal are two different things. Appraiser seeks the value of the home and so their inspection is different from that of appraisal.
The inspection that happens in an appraisal isn’t much more in-depth than that of a home inspection. If you want to derive the true value of your home in terms of quality and monetary demand- having both appraisal and the home inspection can only get you what you want.
Over your course of stay or when you are buying a new home, you may notice these and several other signs. In case you noticed it, it’s best to get your home inspected for Home foundation issues. While this is already in your home inspection checklist, it’s important that you ask your home inspector for a deeper dig so that the necessary actions are taken at the right time.