If you’re buying a home, there are a lot of new terms to learn, and sometimes they can become a bit confusing. For example, many buyers mix up appraisals and home inspections. Understanding the differences between an appraisal and a home inspection will help you tremendously, as they are somewhat similar processes but serve very different purposes.
What Is an Appraisal?
Unless you pay cash for your home, you will probably need an appraisal. Lenders require this to ensure the home is worth the asking price. When you sign a loan, your new home acts as collateral for the loan. Therefore, an appraisal protects the lender. The appraisal report tells the buyer and the lender what the home is worth, and it’s a critical part of the buying process.
Your agent can help you determine how the appraised value compares to comparable properties in the neighborhood.
What’s a Home Inspection?
An appraisal and a home inspection differ in that an inspection does not yield an estimated home value. A home inspection is still an essential part of any real estate transaction; it can provide bargaining power for the buyer in case of any significant defects uncovered.
The inspector will look at the roof, basement, attic, and overall structure of the home. They will also examine the plumbing, electrical system, and other items on an extensive checklist. In many cases, the buyer can join the inspector, and they will point out any issues that could become a problem down the road.
Appraisals and Home Inspections: What’s the Difference?
The most crucial distinction between an appraisal and an inspection is the purpose. An appraisal calculates the market value of the home. Conversely, a home inspection evaluates the condition of the home.
A licensed real estate appraiser evaluates the home to estimate a fair market value. You can use this information to determine whether the seller has set a reasonable and realistic sales price. On the other hand, an inspector takes a deep dive into the property infrastructure, including the electrical, plumbing, and HVAC systems.
Differences between an appraisal and a home inspection include:
- Lenders require home appraisals but not inspections.
- The lender will order an appraiser, but you must set up your own inspection if you want one.
- The appraisal report impacts the lender’s decision in granting you a mortgage loan. An inspection does not affect your ability to get a loan.
- Appraisers report conditions that arise from a visual inspection, but inspectors use special devices to probe for deeper issues.
- Homebuyers can attend inspections, but appraisers conduct their evaluation individually.
- Inspectors will explain their findings and make the process interactive. An appraiser represents the interest of the lender and won’t report anything until the appraisal report comes out.
- A home inspector examines the house’s condition, whereas a home appraiser will look at comparable home prices, lot size, school zones, and crime rates in the area.
Now that you understand the major differences between an appraisal and a home inspection, you are one step closer to being ready to buy a home or sell your home. If you’re looking for an Ann Arbor realtor you can trust, turn to Matt Dejanovich!