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Appraisal vs. Inspection

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We look at the differences between a Home Appraisal and a Home Inspection; Two critical activities carried out upon acceptance of your offer on a house.

Google analytics indicate that quite a few people are curious about the difference between a home appraisal and a home inspection.  If you stopped here, you may be among them.  To understand the differences, we should start with what they each are individually. 

Home Appraisal

The appraisal is a key component to any real estate transaction.  They are almost always used in sale/purchase transactions, and are commonly used in refinance transactions as well.  The appraiser, the one doing the appraising, takes into account the home’s size, comparable sales, condition, location, features and other criterion to determine the market value of the home.  They give the lender the assurance that they are not loaning more than the home is worth, or that the homeowner is not over-borrowing (since the home stands as the collateral for the mortgage).   This helps the bank protect itself against loaning out more than it may recover in the event of a loan default.  The appraiser is selected/appointed by the lender, but it typically paid for by the buyer at closing.  They are licensed third parties that are not affiliated with the mortgage company.

So if you sold your house for more than it is worth, you may end up having to give some of that back or make other arrangements.  If a bank is involved, they will not write a loan for beyond the home’s value without other arrangements being made.  Your real estate advisor can help guide you through this situation.  Despite its crucial role in the transaction, home appraisal was the most commonly waived contingency according to the National Association of Realtors.  Read about it HERE.

Home Inspection

A home inspection is an examination of the home to assess the condition of the structure and various systems, to uncover any potential Red Flags.  These inspectors examine the structure, roof, attic space, electrical systems, plumbing elements, exterior façade/yard, and other items listed in the inspection SOP (you can review it HERE).  The goal is to advise you on the good and bad of the home you are purchasing, or to advise you on what repairs are needed prior to listing the property for sale.  While appraisals are generally required, home inspections are optional (non-FHA or VA loans).  The service fees for this inspection are typically paid for by the homeowner, as the benefit is nearly solely for the homeowner.

What can you do to prepare for an appraisal or listing for sale?

If you are already on the market, you have probably done quite a bit to clean up your clutter.  The things you should be doing to prepare for an appraisal are the same things you should be doing to prepare to put your home on the market.  After all, all of your neighbors will be looking through the photos (judging),  put your best foot forward.  Appraisers aren’t technically supposed to take cluttered contents or other aesthetic components, but they are only human.  Damaged items or missing components certainly will affect the property’s value.  Consider renting a storage unit and taking out elevated contents.  Elevated contents give people anxiety, as they may envision themselves having to contain the clutter upon move in.  Assess your lighting.  I once had a realtor who had me change out all of the low voltage light bulbs for 100w (very bright) bulbs.  While I doubted his rationale, the house looked brighter than ever, which resonated well with those who saw it (the few that did, it sold on the first day).  Make sure you have patched small dings and dents, and the mechanical systems are in good working order.   Any preemptive cleaning you can do will go a long way.  Home defects are like ants, and could actually BE ants, but when you see one you assume there are a thousand more.  Write that down.

You could, of course, get a seller’s inspection to give you a punch list of most critical repairs to make.  This will help you assess what is vital, what is preferred, and maybe what you want to tackle yourself.  If interested or curious, learn more HERE.  You can read about some of the reasons in this article by Zillow, HERE.

Summary

So you can see, the appraisal tells you the value of the home, while the various inspections help you understand the condition of the home/components.  Both experts work toward ensuring that the home you are purchasing is sound and is worth the amount of money being given in return.

A trusted real estate professional is a good person to ask any remaining questions you may have relating to this topic of Inspection vs. Appraisal. 

Hello!  I’m Mike Powell, P.E., the founder of Red Flag Home Inspection, LLC and the creator of this website.  I am also a Professional Engineer and Forensic (failure) Scientist.  Thank you for taking the time to read this blog post.  We appreciate your time spent on this site and are always open to suggestions and ideas from our readers.  You can connect with us through our social media channels (FacebookInstagram, Youtube, Twitter, or Email me anytime. We would love to hear from you. 🙂

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