What is a Home Inspection and Appraisal? Must know facts.

home inspection vs appraisal

Buying a home is one of the most complex transactions most people navigate in the course of their life. (Though selling a home while buying another just could top it!) When the financial stakes are that high, things inevitably get complicated – and that’s not to mention the emotional stakes of deciding on a new home. So it makes sense that the process is involved. That doesn’t make it any easier.

The home inspection period is one of the most stressful parts of the home buying period. Am I buying a lemon? Is there something underlying that is going to cost me big in the end? Then comes the appraisal – which can seem like just another inspection! So what’s the difference?

Having an insight into the process will make the home buying process easier and ensure that you know your rights. To help set your mind at ease, we’ll walk you through what an inspection is, what and appraisal is, and how they differ.

What Is a Home Inspection?

The purpose of a home inspection is to educate the buyer on the condition of the property. After a written offer is made, the inspection will then give the prospective buyer insight into any issues the home might have. The roof, the plumbing, the foundation, the heating – you name it. Or, if you’re selling, you can elect to have a “pre-listing inspection,” which must be shown to the prospective buyer. (This would not include Portland’s required Home Energy Score.)

In general, though, the buyer pays for the home inspection. Your real estate agent can help by providing guidance and a list of reliable contractors. You can also research the contractor on your own. Which brings us to the next big question: who performs the inspection?

How a Home Inspection is Conducted in Portland

In Oregon, the home inspector must be “certified and either be a licensed construction contractor or work for a licensed construction company.” We’ve all heard horror stories about getting ripped off by a contractor, so you might be wondering how you are protected from shady business. Oregon home inspectors must inspect at least two components of a house and are prohibited from performing work on a home they’ve inspected for twelve months. So that boils down to: a roofer can’t come in, only look at the roof, and then tell you the house needs a new roof. If an inspector does identify an issue with a specific part of the home – let’s say plumbing – then you may vet plumbers and have them advise you further on what needs to be repaired.

If issues with the property come to light via the home inspection, that can enter into negotiations between the buyer and seller during closing. The seller’s property disclosure statement also factors in in a big way during this crucial time. While it technically isn’t required, any good real estate agent will strongly recommend it.

What Is a Home Appraisal?

Okay, you’ve gotten your inspection. You’re one step closer to closing. So why is there another hurdle to finally getting in your new home?

Outside of a cash transaction, the home buying process almost always requires an appraisal, which differs from an inspection in a few key ways. The appraisal is ordered by the lending institution in order to make sure they’re also getting a return on their investment. It’s all part of approving a mortgage loan. If they appraise the property and determine the value is significantly lower than what the sale price is, they are going to challenge your loan.

The good news is this also protects buyers from any huge disparity in the value of their prospective investment. But buyers should know that the appraisal is intended primarily to protect the bank, essentially. In contrast, the inspection is primarily meant to protect the customer.

How Is Home Value Assessed in an Appraisal?

When the lender orders an appraisal, they will choose one of their licensed third parties to conduct it. The job of the appraiser is to assess a value for the home based on a variety of factors. Those factors can range from the school district to the neighborhood infrastructure. But the structure of the home itself and its condition does come into play. Part of an appraiser’s job is to research the market value of the home. In other words, what similar homes in the same area have been selling for. They want to make sure the home’s sale price is comparable to similar homes – and so will buyers.

Home Inspection Vs. Home Appraisal: What’s the Difference?

Our goal here is to demystify the process of buying or selling a home. Understanding the part of the process during closing when the inspection and appraisal occur (and it all happens in a whirlwind, we know) will help all parties protect themselves and get the most out of it. Not to mention replacing stress with excitement!

With that in mind, check out this table to get your head around what the difference is between a home inspection and a home appraisal in Portland.

VersusPortland Home InspectionPortland Home Appraisal
What’s the purpose:assess the condition of the homeassess the value of the home
Who performs it?a certified contractor, with regulations in place to prevent unethical or biased results a certified appraiser chosen by the lender
Who pays for it?typically the buyer, though the seller may opt to have one performed prior to listingthe cost of the appraisal, which is taken on by the bank, will often be wrapped into closing costs
When does it happen?After an offer is made, unless a seller has elected to have a pre-listing inspection, or if a failed sale provides a previous inspectionAfter an offer is made, while the lender is finalizing closing on the loan
Is it required?No, but it’s highly inadvisable for a buyer to forgo itUnless it’s largely a cash transaction, the lender will require it
How does it affect the transaction?If issues come to light, they may factor into the negotiations in favor of the buyerIf the appraiser finds the value of the home to be far under the buyer’s offer, they may not allow the loan to go through (this is rare). Should the value be over the buyer’s offer, the buyer has already gained equity

Make the Most Out of Your Real Estate Milestone

At the end of the day, the best way to have a good experience buying or selling a home is to have a trusted real estate agent by your side. We’re here to guide you through the journey. From listing to inspection, appraisal to closing, our top 1% buyers agents and our top 1% sellers agents are here to help today.

March 1, 2021

Stephen FitzMaurice

Stephen FitzMaurice, Realtor is a top 5% real estate agent in the U.S. A Principal Broker in Oregon, Managing Broker in Washington, he has been licensed since 2003 for residential real estate sales. Call his team in Oregon at 503-714-1111 or in Washington at 360-345-3833.

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