The difference between a home inspection and an appraisal
If you're looking to buy or sell a property, you'll likely come across two terms that may seem interchangeable but are actually very different - home inspection and appraisal. Understanding the purpose and process of each can help you make better-informed decisions, so let's take a closer look at what they entail.
Home inspection
A home inspection is a non-invasive examination of a property's condition and functionality. The purpose of a home inspection is to identify any existing or potential issues that could affect the safety, livability, or resale value of the property. The inspection is typically conducted by a licensed and certified inspector who has no vested interest in the property.
During a home inspection, the inspector will examine the interior and exterior of the property, including the roof, foundation, walls, windows, doors, plumbing, electrical system, heating and cooling system, appliances, and more. The inspector will also test various systems and components to ensure they are working properly. The inspection usually takes a few hours to complete, and the inspector will provide a detailed report outlining their findings and recommendations.
The cost of a home inspection varies depending on the location, size, age, and type of property. However, it's typically a few hundred dollars, and the buyer is usually responsible for paying for it. In some cases, the seller may pre-emptively order a home inspection to identify and fix any issues before putting the property on the market.
The results of a home inspection can impact the sale of the property. If significant issues are discovered, the buyer may use the report to negotiate a lower sale price, request repairs, or back out of the sale altogether.
Appraisal
An appraisal, on the other hand, is a valuation of a property's worth. The purpose of an appraisal is to determine the fair market value of the property, which is the price that a willing buyer would pay a willing seller for the property in an open market. Appraisals are typically conducted by a licensed appraiser who has no interest in the property.
During an appraisal, the appraiser will examine the property and compare it to similar properties in the area that have sold recently. They will look at things like square footage, location, condition, and amenities to determine the property's value. The appraisal report will include an estimated value of the property, along with a description of how the appraiser arrived at that value.
The cost of an appraisal can vary but is usually a few hundred dollars. In most cases, the buyer must pay for the appraisal as part of the mortgage process.
The results of an appraisal can impact the financing of the property. Lenders use the appraised value to determine how much they are willing to lend a buyer. If the appraised value is lower than the sale price, the buyer may have to come up with the difference in cash, renegotiate the sale price, or back out of the sale altogether.
Key differences
While both a home inspection and appraisal involve evaluating a property, there are key differences between the two.
The primary difference is their purpose. A home inspection is intended to identify any issues with a property, while an appraisal is intended to determine its value.
Another difference is who orders them. A home inspection is usually ordered by the buyer, while an appraisal is usually ordered by the lender.
The scope of the examination is also different. A home inspection is more comprehensive and examines the property's condition and functionality, while an appraisal looks at more general factors and focuses on the property's market value.
Lastly, the cost is typically different. A home inspection is usually paid for by the buyer, while an appraisal is paid for by the buyer's lender as part of the mortgage process.
Conclusion
Understanding the difference between a home inspection and appraisal is essential for anyone looking to buy or sell a property. While they serve different purposes, both are important in their own way and can impact the sale of the property. Investing in a home inspection can save buyers from costly repairs down the line, while an appraisal ensures that buyers and sellers agree on a fair price. Ultimately, both a home inspection and appraisal are essential tools in real estate transactions.