Inspection vs. AppraisalPosted on May 21, 2021
When you are getting ready to buy or sell a home, inspections and appraisals are just part of the process. Many people think that appraisals and inspections are essentially the same thing, but there are some key differences.
What is an Appraisal?
If you’ve ever watched “Antiques Roadshow”, then you’re probably familiar with the concept of an appraisal on personal property. A real estate appraisal is very similar. Each property is unique, and the appraiser will rely on their general expertise and specific research to arrive at an opinion of value.
Paid for by the buyer, and ordered by their lender, the appraisal provides valuable information for both the buyer and seller. But the appraiser’s primary function is actually to protect the lender. Lenders don’t want to own overpriced property. That’s why the appraisal takes place before final approval of the buyer’s loan.
Appraisers use a variety of factors to arrive at their decision of a property’s value. They weigh many factors, such as the size, condition, and location of the home, proximity to desirable facilities like schools, the size of the lot, and recent sales prices of comparable properties, among other factors. Appraisers aren’t interested so much in whether or not the house is clean but they do take note of signs of neglect, such as chipped paint, cracked walls, broken windows, torn carpets, damaged or missing flooring, and inoperable appliances.
If the appraisal comes back lower than the purchase price, it’s not necessarily a dead deal. The seller can agree to reduce the purchase price. The buyer can make a larger down payment. Or, if it’s a question of repairs, a separate escrow account can be set up to fund those repairs.
What’s the Difference Between an Appraisal and an Inspection?
An appraisal isn’t a substitute for a professional home inspection. While the appraiser is concerned with the property’s value for the sake of the lender, the inspection focuses on the property itself, and is there to protect the buyer. An inspection report can help educate the buyer about the condition of the home and its major components, like the foundation, HVAC, roof, plumbing, electrical systems, and appliances. A professional inspector can shed some light on the home’s condition by pointing out both existing and potential future problems. The buyers can then ask the seller to make any problematic repairs before closing. Or, they could ask the seller to lower the contract price in anticipation of having to pay for the repairs after the sale is finalized.
Perhaps most importantly, if the inspection period hasn't ended yet, the buyer can choose to back out of the contract if the inspection report reveals unforeseen problems that are literal deal-breakers.
So, while the two concepts share some similarities, they both serve individual, unique purposes in the home-buying process. We know the home-buying journey can be confusing, but we’re here to help! Reach out to Team Lassen with any of your home-buying questions and we’ll be happy to answer!