Appraisal vs. Inspection

Many home buyers get a little confused as to the difference between an appraisal and a home inspection.  What are the key differences and why are they both needed?

There are distinct differences between an appraisal and an inspection. Which is why both are important and play a very important role when you are purchasing a property.  

Let’s break them down with 4 key differences:

1. Value- the Appraisal is to determine the market value of the home by looking at comparable homes in and near its location. Inspection does not look at the value of the home.
2. Plumbing- An inspection will inspect the plumbing, making sure all is in good working or but more importantly are there any future concerns. If any, they will suggest a scope so you can see how long until a problem and at what cost to repair.  An appraisal will address that plumbing is working but will not look at what the future may hold.
3. Electrical- Same as plumbing, an appraiser will check to make sure all electricity is working, but they don’t look to see if there are any issues within the wiring.  An inspection will look into any unforeseen issues that could arise.
4. Health & Safety- This is a little bit of a mutual force between the two rather than a difference.  An appraisal not only covers the value of the home based off the market and comparable homes in the surrounding area, but it also looks at the health and safety of the property.  An inspection does look into health issues such as a radon check, structural issues, ventilation, heating, air conditioners, drainage, etc.

If you are doing a government loan (FHA/VA, USDA) the appraiser will look for specific health and safety items that need to be sufficient and/or in compliance with HUD guidelines. These include items like peeling paint, stair rails installed, exposed electrical (ask a lender for other concerns they may look into). Conventional mortgages and VA mortgages have different requirements as well.  Regardless of what type of loan you are doing your appraisal is focused on the value of the property.

If the home inspector feels there are any issues to be addressed they will advise for you to hire a professional in that specific field of expertise, such as a structural engineer, plumber, an electrician.  They will provide you with an idea of what is happening with the property and if they foresee any future problems. Some issues found could be a very costly expense. This is why the inspection is extremely important and highly recommended, see also this article from Forbes. It is a good idea to be aware of any issues and then making a calculated decision after knowing the facts.  Once you have your home inspection results back you can decide how to proceed with respect to requests you may make to have the seller fix items. The last thing you want is to do is purchase a property and a week later find out you need to replace the electrical, replace the roof or a deal with a severe plumbing issue!

An inspection is not required for your home mortgage approval, but again highly recommended.  The home inspection will not need to be reviewed by the underwriters. It is extremely valuable in discussing with your Realtor should you need to address the sellers with any issues.  Your inspection can help in negotiating your real estate contract.

It is always good to be informed and prepared on the property you want to purchase. Nobody likes being left with surprises.  Especially surprises that will cost you money!

If you have any questions please don’t hesitate to contact us, we are always here to help.