The difference between an appraisal and inspection
By: Robert Davis
Do you understand the difference between a property appraisal and a home inspection? Surveys show that many home buyers — even those who have purchased homes before – have some level of confusion about these two key aspects of a home purchase.
Appraisals are designed to estimate a property’s value based on a number of different factors. They are typically ordered by lenders during the home buying process to make sure they don’t approve mortgages for more than properties are worth. Appraisers typically document and photograph property amenities, inside and out. Appraisal reports typically take into account a minimum of three comparable sales of nearby properties to arrive at an accurate appraisal value.
While an appraisal can give a home buyer a good idea of a property’s value, it is no substitute for a home inspection. A home inspection, by comparison, is a detailed, hands-on evaluation of a property’s condition. Inspections are typically ordered by a home buyer, not a lender. Homes don’t get a ‘pass’ or ‘fail,” a grade or rating. The inspector simply compiles what he or she observes in terms of property condition in a report. Anything an inspector sees that is unsafe or in need of repair is noted.
While a home appraisal is virtually a mandatory part of the home buying process if you’re taking out a mortgage loan, a home inspection is entirely voluntary. But that doesn’t make inspections any less important. Inspectors look for costly and hidden defects and problems, such as roof issues, faulty heating/cooling systems, structural problems and leaky pipes, that could lead to costly headaches down the line for anyone who owns the home. They’ll also document any of a number of less serious issues.
Many home buyers who pay for a pre-purchase inspection make their offer contingent upon that inspection. Inspections are even more critical when purchasing a distressed property, due to the more limited amount of information potential buyers may have access to about a property’s condition and possible problems.