THE MONEY STORE BLOG

Home-Buying Inspection vs. Appraisal: What's the Difference?

When you’re buying or selling a house, the home inspection and the home appraisal are two very important steps. While they both involve an assessment on the home, an inspection and an appraisal serve different functions and can have an impact on whether or not the deal goes through.

What is a home inspection?

A home inspection is a visual review of the physical structure of the house, from the foundation to the roof and everything in between. It can include structural components like footings and load-bearing walls, insulation, electric and plumbing, and heating and cooling systems. An inspection is generally completed by a licensed, independent person or company to ensure reliable information. While it is recommended that you also closely inspect a property you want to buy, an accredited inspector has the knowledge and expertise to understand common issues and see things that a homeowner might miss.

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Why should I get an inspection?

During the buying process, an inspection is paramount to inform you of any possible issues or unforeseen problems with the house. Structural, plumbing, or electrical issues may not be visible during a quick walk-through, and a licensed inspector will know exactly where to look for signs of damage or causes for concern. Because a home is such a large investment, you want to be positive that you know what you’re getting yourself into. Many times, closing on a home will be contingent upon an inspection — the buyer will only agree to purchase the home after an inspection is completed and the parties come to an understanding about how to handle any issues that arose. For instance, an inspection might uncover a leaky roof, and the seller may decide to cover some or all of the cost of the repair to entice the buyer to go through with the deal.

If you’re planning to sell your home, you may also consider getting an inspection before listing to address any problems ahead of time. It can help you determine which repairs might help the house’s selling potential before it’s put on the market. The buyer may still want to conduct their own inspection before agreeing to purchase, but you’ll already have a good sense of the home’s condition and can anticipate what to offer the buyer.

What is an appraisal?

An appraisal also involves a visual review of the house, but its purpose is to help in the valuation of the home, not to uncover areas for improvement. Many factors are included in the home appraisal, such as the neighborhood or school district, comparable homes in the area, property upon which the home is situated, and the age and condition of the house itself. Like inspections, appraisals are also conducted by licensed professionals.

Home-Buying Inspection vs. Appraisal
Inspection vs. Appraisal

Why do I need an appraisal?

The appraisal determines the maximum that a mortgage company is willing to lend to the buyer and is often not optional when working with a lender. In many cases, the appraisal just reaffirms the fairness of the purchase price, but occasionally an appraisal may interrupt a sale. For example, a seller may list a house for $300,000, and the buyer is able to afford the house with a down-payment and a mortgage of $285,000. But the appraisal value may come back at a maximum of $250,000, meaning that is the highest amount the bank is willing to lend for that house. This means that the buyer can only secure a mortgage for $250,000 and will need to increase their upfront payment by $35,000. If the buyer can’t, and the seller isn’t willing to lower the purchase price, the deal will fall through.

As a seller, you can help boost your home’s appraisal value by upgrading fixtures and fixing cosmetic damage, such as stained carpets, damaged flooring, or scuffed walls. You can also improve your home’s curb appeal by sprucing up the landscaping, repairing damaged windows, and giving your home a fresh coat of paint. If you make larger investments, like replacing a roof or insulation, make sure to inform the appraiser — those items aren’t always noticed and can have an impact on the bottom line.

A home inspection and a home appraisal are necessary and important parts of the home-buying process. They make sure that both parties have all the information available to make a smart, fair transaction. While both may come at a nominal fee, they offer peace of mind and reassurance — and on such a big investment, those are priceless.