When you’re buying a home, you’ve probably heard the words “Appraisal” and “Home Inspection” thrown around a lot. They’re both evaluations of your home, but what is the difference? An appraisal is a very important step in the home-buying process. It’s a professional evaluation of the market value of the home you’d like to buy. In most cases, an appraisal is ordered by the lender to confirm or verify the value of the home prior to lending a buyer money for the purchase. It’s also a different step in the process from a Home Inspection, which assesses the condition of the home before you finalize the transaction.
Here’s the breakdown of both processes and why they’re so important to both you and your lender when buying a home.
The National Association of Realtors (NAR) explains:
“A home purchase is typically the largest investment someone will make. Protect yourself by getting your investment appraised! An appraiser will observe the property, analyze the data, and report their findings to their client. For the typical home purchase transaction, the lender usually orders the appraisal to assist in the lender’s decision to provide funds for a mortgage.”
When you apply for a mortgage, an unbiased appraisal (which is required by the lender) is the best way to confirm the value of the home based on the sale price. Regardless of what you’re willing to pay for a house, if you’ll be using a mortgage to fund your purchase, the appraisal will help make sure the bank doesn’t loan you more than what the home is worth.
This is especially critical in today’s sellers’ market where low inventory is driving an increase in bidding wars, which can push home prices upward. When sellers are in a strong position like this, they tend to believe they can set whatever price they want for their house under the assumption that competing buyers will be willing to pay more.
However, the lender will only allow the buyer to borrow based on the value of the home. This is what helps keep home prices in check. If there’s ever any confusion or discrepancy between the appraisal and the sale price, your trusted real estate professional will help you navigate any additional negotiations in the buying process.
Here’s the key difference between an appraisal and an inspection. MSN explains:
“In simplest terms, a home appraisal determines the value of a home, while a home inspection determines the condition of a home.”
The home inspection is a way to determine the current state, safety, and condition of the home before you finalize the sale. If anything is questionable in the inspection process – like the age of the roof, the state of the HVAC system, or just about anything else – you as a buyer have the option to discuss and negotiate any potential issues or repairs with the seller before the transaction is final. Your real estate agent is a key expert to help you through this part of the process.
Once you have a professional inspector come into your home for the evaluation, they will give you a written report of the completed inspection. It should include: images of issues needing attention, descriptions of the issues and the potential impact, and a summary to highlight the most important issues
The appraisal and the inspection are critical steps when buying a home, and you don’t need to manage them by yourself. Reach out to a local real estate professional today so you have the expert guidance you need to navigate through the entire homebuying process.
Content sourced from KMC, Spectora, NAR