What is the Difference Between a Home Appraisal and Inspection?

When you buy a home, you’ll be faced with many processes, including the home appraisal and inspection. While they sound similar, they are two very different processes. All lenders require an appraiser to value the property. Lenders do not, however, require an inspector to go through the property. It’s up to you if you want to pay for it. Generally, though, it is a good idea.

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What is the Home Appraisal?

During the appraisal, an appraiser walks through your home. He does not inspect specific areas or look to see if the utilities work. He is just trying to get a basic idea of how much the home is worth. He does look for obvious things like a hole in the wall, a damaged roof, or a broken window, for example. The appraiser also verifies that everything you stated about the home is true. He looks for things like:

  • Number of bedrooms
  • Number of bathrooms
  • Square footage of the home
  • Size of the home’s site
  • Any upgrades
  • Any additions

The appraiser then compares the home to comparable sales in the area. He tries to pull sales that occurred within a one-mile radius within the last six months. This gives the appraiser the best idea of how much the home may be worth today. He will make adjustments based on the differences between the homes. For example, if a comparable sale doesn’t have a basement, but your home does, he will adjust your home’s value accordingly.

The appraiser will look at the condition of the property, but at the surface level. If an issue is not visible at first glance, the appraiser will not likely catch it.

What is the Home Inspection?

The home inspection is a much more detailed process. The inspector looks at every little area of the home. The inspector looks at the condition of the home as well as for any type of damage or potential damage that could affect your homeownership.

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The inspector doesn’t just look at the surface. He will inspect all utilities, basements, crawl spaces and more. The inspector will spend several hours at the property, taking notes as he goes. The inspector will note things that don’t look right, but of course, he can’t see beyond the walls or permanent fixtures to know what is going on behind them.

The inspection is not an insurance policy or a guarantee of the condition of the home. It’s meant to give you an idea of the current condition of the home in order to help you decide if it is a good investment.

Appraisers Work for the Bank

Appraisers essentially work for the bank. The bank wants to make sure they are making a good investment by giving you a loan. If they lend you more than the home is worth, they are at risk of you just walking away from the home and the mortgage.

The appraisal does protect you in a way too, though. It helps you understand the true value of the home. Would you want to bid more for a home than it is worth? It’s probably not the best idea. Your end goal should be to own your home free and clear. If you start off upside down (owing more than it’s worth), it could make it very difficult to eventually own the home on your own.

Inspectors Work for the Buyer

Inspectors, on the other hand, work for the buyer. They help protect the buyer from buying a property that is in poor condition. The inspector has an obligation to tell you anything that he finds wrong with the home.

The things the inspector finds wrong with the home may be simple or they may be major. Either way, they should play a role in your decision to buy the home. If you find that there are multiple things wrong with the home, you may want to consider if you can afford to repair them. Basically, they add to the cost of the home.

Let’s say you buy a home for $150,000. The inspector determines that there is $10,000 worth of work that needs to be done to get the home in perfect condition. The home now costs you $160,000, even if you don’t fix everything right away. This is something you’ll want to keep in mind as you make your decision.

Both the appraisal and the inspection play an important role in the home purchase process. The appraiser helps you make sure you are making a good buy. The inspector helps you understand the condition of the home beyond what you can see at first glance. They are both methods of protecting your investment in a home.

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Justin McHood is a managing partner at Suited Connector and has been recognized by national media outlets as a financial expert for more than a decade.

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