What’s the Difference Between an Inspection and an Appraisal?Originally published at Lansing State Journal
A home inspection and appraisal are two inevitable steps in almost every real estate transaction. While some buyers and sellers assume these processes are essentially the same thing, the truth is they are quite different.
Let’s take a look at some of the key differences between these two critical steps.
The Home Inspection
When you purchase a home you aren’t just buying that amazing updated kitchen or beautiful master retreat, you’re also buying any problems lurking behind the walls or in the attic. In order to be as informed and educated as possible, a professional home inspection is a must.
Most savvy buyers include a home inspection contingency in their offer, which allows them to reopen negotiations or walk away from the deal altogether if they aren’t happy with the results.
ASHI says a standard home inspection report covers “the condition of the home’s heating system; central air conditioning system (temperature permitting); interior plumbing and electrical systems; the roof, attic and visible insulation; walls, ceilings, floors, windows and doors; the foundation, basement and structural components.”
Lanny S Brunette, Certified Residential Appraiser and owner of LSB Appraisal Services, LLC, says buyers need to keep in mind that every inspection will reveal some sort of issue.
“No matter if the home is older or brand new, there will likely be some flaw or repair that pops up,” he said. “After you receive the detailed findings, you and your REALTOR® can evaluate whether the problems are deal breakers, things you need to negotiate with the seller, or simply items you need to keep in mind for the future.”
Brunette says one of the biggest differences between a home inspection and an appraisal is whom the professional works for and the general focus.
“An inspector works for the buyer, educating them on the condition of the home and alerting them to potential problems,” he said. “On the other hand, while an appraisal does provide valuable information for a buyer or seller, appraisers actually represent the lender.”
While an inspector provides a thorough report of a home’s condition, a professional appraiser provides an opinion of a property’s value. Mortgage lenders require a home appraisal before they approve financing because the home serves as collateral for the mortgage. If for any reason the borrower defaults and the home goes into foreclosure, the lender will need to sell the property to repay the loan.
An appraisal is often seen as subjective because it’s the appraiser’s opinion of value, but that opinion is based on current market, data collected at the home and from the municipality, and comparable home sales.
Most appraisers start with a property observation of the exterior and interior of the home, taking note of the size of the home, the floor plan, condition, functionality, and overall appeal. They also look at characteristics of the surrounding neighborhood and market area.
Brunette says while inspectors do a much more thorough examination of a home’s structure and components, most professional appraisers will note if they see potential problems.
“If we notice anything in disrepair during our visual analysis we will suggest having it checked by an inspector or a professional experienced in that particular area,” he said. “For instance, if I turn on the air conditioning and it’s not working properly, I will make a note in my report to suggest an inspection by a heating and cooling professional.”
This is especially true if the buyer is using a mortgage backed by the Federal Housing Administration (FHA). With FHA loans, the appraiser must survey the physical condition of the home and disclose potential problems in the report.
So, while an appraisal and an inspection may contain some overlapping information, one is not a substitute for the other. Both professionals are key players in any successful real estate transaction.
Date : 8/17/2018