What's the difference between home inspections and appraisals?
Home appraisals and home inspections are two home assessment procedures that anyone trying to buy or sell a home usually has to go through. But, even though home inspections and appraisals are familiar, most people misunderstand and deem them unnecessary. Homeowners and buyers often ask, since both the home appraisal and home inspection are forms of evaluation, why is it necessary to have both during a single transaction?
This question arises because sellers and buyers assume that a home inspection is the same as a home appraisal. They think the difference in names is just a matter of words, and they are merely two different ways of saying the same thing. That is why people who are engaged in the sale or purchase of a property often struggle to understand why they have to have a home appraisal and a home inspection. In this article, we explain the differences and purpose of these two types of home evaluation.
What is a home appraisal?
The home appraisal is an unbiased professional opinion of the home’s market value, based on an assessment by a neutral third party. The review is by a professional - a qualified appraiser - who has been trained and certified for this purpose. He or she examines the property with the sole objective of determining its economic value based on certain factors.
The basis of an appraisal is with the understanding that homeowners may fix the price of their home from a subjective point of view. The home appraisal seeks to establish a more realistic price for the property using transparent and measurable factors. It uses parameters that are accessible and easily understood by everyone to determine the value of the home, explains Bigham & Associates Management.
Key factors that a qualified home appraiser looks at to determine the value of a home include:
· The home’s square footage and floor plan
· Its amenities, the number of bedrooms and bathrooms
· The physical condition of its exterior and interior
· The sales price of similar homes that were recently sold around the area
The home appraisal is a value analysis of the property. And it is usually required by lenders as part of their mortgage approval processes. The appraisal ensures that the lender is not paying more for a property than it is worth.
What is a home inspection?
The home inspector is an unbiased professional opinion of the home’s physical condition, based on examination by a neutral third party. The home inspector who is trained and certified for this purpose examines the home to provide a snapshot in time of the condition of its structures, systems, and appliances.
The home inspection shines a spotlight on every part of the home to uncover any underlying issues. It follows a step-by-step process that utilizes a minutely-detailed checklist of factors that the inspector uses to score the various areas of the home. A standard home inspection may last over three hours and focuses on the following areas of the house:
· Structural components, such as foundations, walls, and floors
· The home’s exterior, including roofing, yard, garage, and outhouses
· All of the home’s systems: HVAC, plumbing, and electrical
· The home’s interior areas, along with the appliances
The home inspection recognizes that homeowners may not always disclose the existing problems in their homes. It helps the buyer get a more in-depth picture of the house. That allows the buyer to make a more informed decision about whether to buy the home or not.
Summary of differences between a home inspection and a home appraisal
· The home appraisal is ordered by the lender to help them arrive at an objective value for the property. The home appraisal is only concerned with the market value of the home.
· The buyer orders a home inspection to help them arrive at an objective opinion of the home’s physical condition. It deals only with the home’s physical structures.
· A home inspector does not examine the surrounding neighborhood or the value of similar properties, but the home appraisal will take the area into account. It will look at the trends in home prices in the area.
· Owners are not allowed to accompany the appraiser during the appraisal of their property. The buyer is encouraged to escort the home inspector when he or she does the inspection.
· Appraisers only do a visual inspection; they don’t use special instruments. Home inspectors will often use special tools and equipment during the inspection.
· The home appraisal may affect the loan amount due for an individual. The home inspection may affect how much a buyer is willing to pay for a home.
Article Courtesy of Neal with Bigham & Associates Management.