Home Inspection vs. Appraisal: Understand the Difference

Are you buying or thinking about buying a home? If so, you should understand the difference in the home inspection vs. appraisal process. Let’s take a look at the differences and similarities in these two important parts of home-buying.

What is a Home Inspection?

A home inspection looks to the physical condition of the structure and systems of a home. They are performed by licensed inspectors and should look at everything from the foundation up to the roof. This is an expense the buyer will incur and it is well worth the price of inspection. With a complete inspection report – you will have good insight into the condition of the home and if you should/should not look to proceed with the sale of the home. Yes, unfortunately – sometimes inspectors find things that are deal breakers in the course of their inspection. Your contract typically allows for inspection and the right to cancel the offer during the inspection period (with return of your earnest money deposit).

That said – don’t be alarmed if there are findings. This shows your inspector has done their job and been thorough in their review of the property. With an inspection report in hand – work with your REALTOR and determine which things you’ll ask the seller(s) to fix/address and which are things you will look to handle post-closing. Anticipate that there may need to be some negotiation at this phase depending on what is found and needs to be fixed. You’ll also want to think through what is being fixed and if you want to fix it (with your chosen vendors) or if you need to make certain requests regarding the repairs (think licensed and insured contractor, proof of work being complete, etc).

Seller tip: It can be in your best interest to seek your own inspection prior to listing your house for sale. This affords you an opportunity to correct any issues and address them prior to going under contract.

What is a Home Appraisal?

A home appraisal is often required as part of the loan implementation phase (if you’ll be financing). This will be completed by a real estate appraiser and looks to determine the property’s fair market value. In general, appraisers will look to the living condition of the house, any home improvements and nearby home values.

An appraisal contingency may be added to your offer (or in the contract) and allow for the chance to cancel the offer should the house not appraise. However, there are ways to work through a low appraisal value (seller lowers the price, you agree to make up the difference or you and the seller agree to meet in the middle).

You as the buyer will pay for the appraisal. However, talk to your lender about the charge because it may be something that gets addressed during the closing process.

Some common questions about Home Inspection vs. Appraisals:

I’m buying a new construction home – do I really need a home inspection? My advice here always would be to get the inspection(s). Additionally, if you are going through the new build process – consider a pre-drywall, post-close and then 11 month (post close) inspection. These inspections happen at important times during the build and can find any number of things that may need to be addressed.

I’m paying cash for my home – do I really need a home appraisal? My advice here would also be to strongly consider the appraisal. You would want to ensure that you’re making a sound investment by purchasing the home. The appraisal is the only true way to ensure this is the case.