Home Inspection VS. Appraisal: What’s the difference?

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Home inspections and appraisals happen in the vast majority of real estate transactions. They both involve someone physically coming to the home and making an assessment. And both can have an influence on the eventual success or failure of the home sale.

Note: This article is not focusing on refinance appraisals. With refi appraisals, it is more frequent that an appraiser doesn’t have to come inside the home (though often they still must). The appraisal must come in at value to get the whole refi loan you want, but you could go for less potentially. In our experience, the lender may appraise the home higher than its worth in a refi because it knows you have good credit or strong financial standing.

So how are purchase appraisals and inspections different? In a nutshell, the home appraiser is someone hired by the lender (though still often paid for by the home buyer) to assess the value of the home. A home inspector, on the other hand, is trained to look into the nuts and bolts of the home and provide buyers with a report that will highlight any major defects.

The differences between a home inspection and appraisal are not hard to understand, but to make it even simpler, we’ve created a chart:

is concerned with the condition of the home; home inspectors do not make any statements about value.
is concerned with the value of the home; condition plays a part but is not the whole story.
is ordered by the buyer, and is based almost entirely on an in-person inspection of the home.
is ordered by the buyer’s lending institution, and is based on a physical assessment of the home as well as market comparables.
is typically performed by a certified home inspector whose job it is to assess the overall structure of the home and look for defects or hazards.
is performed by a licensed appraiser whose job it is to establish the fair market value of the home.
may find minor or major problems with the home that need repair. If major problems do come up, the buyer can walk away if an inspection contingency was written into the sales contract. Most of the time repairs are negotiated between buyer and seller.

should come in or above the amount of agreed-upon sales price of the home. If it doesn’t, the lender can deny the loan. Also checks for major defects, health and safety being primary. Can require repairs after the inspection period is over! Repairs and low appraisals details can be sorted out by buyer and seller, but lender will force resolution to give the loan.
is strongly recommended for all real estate transactions.

is not required in all-cash transactions. But most buyers borrow money, and therefore must get the home appraised. In a rare case the lender can waive the appraisal.
can be performed ahead of time by the seller. Known as “a pre-listing inspection”, it can help eliminate surprises and speed up the closing process. However, that pre-listing inspection report must be passed to the new buyer who will get their own inspection on top of your inspection. This route can lead to more work for the seller.
can only be performed by a lender-approved appraiser during the closing period. In other words you can’t get an appraisal done in advance that a lender will accept.

Inspections and Appraisals – how nervous should you be?

For both home buyers and sellers, the home inspection and appraisal process can be nerve-wracking. Sellers can read our seller’s property disclosure guide to help them prepare. Buyers have to rely on good inspectors and a good buyer’s agent to help guide them through the results.

These two processes are vital to the home sale, but they don’t need to be source of stress and anxiety — we have enough in this world already! Talk to a top real estate agent, know what to expect, and what the possible outcomes are of a low appraisal or shocking home inspection. There’s always a plan B and it can help to know what it is before the appraisal or inspection happens.

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