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Appraisal vs. Inspection: What’s the difference?

It’s not uncommon to be confused between the appraisal and inspection when purchasing a home. While an appraisal and an inspection both require a professional to assess the property, they are two completely different processes performed for different reasons. 

Appraisal 

An appraisal is something that is required during the home buying process if you are taking out a loan to purchase the property. The bank or mortgage lender will order an appraisal to get a third-party determination of the property’s value. The appraiser will make their decision based on the home’s location, the condition of the property, and the value of comparable nearby homes sold recently. 

The appraisal is critical in the lender’s decision making, as the lender will not typically lend more than 97% of the home’s appraised value. If the appraisal comes back lower than the amount borrowed, then the borrower will either need to put more money down, renegotiate with the seller, or back out of the deal altogether. On the other hand, if the appraisal comes back higher than the home’s purchase price, then the borrower will gain instant equity in the home. 

Inspection 

An inspection is an evaluation of the home’s condition that will help to uncover any visible or hidden issues.

It’s not mandatory to hire a home inspector before purchasing a home, but neglecting to do so could blindside the buyer to issues in the house that are undetectable to the untrained eye.

An inspection typically costs anywhere from $200-$400, depending on your area and the size of the home. Keep in mind that spending a couple of hundred dollars upfront might save you hundreds of thousands in the long run.

An inspector will evaluate the house’s plumbing, walls, ceilings, floors, foundation, basement, roofing, drainage system, garage, heating, and cooling system, and electrical system. Some—but not all—inspectors look at kitchen appliances to ensure that they’re working. 

If possible, buyers should attend an inspection so the inspector can point out any issues in person. 

Once finished, the inspector will create a comprehensive report of their findings and recommendations. The report is typically presented to the buyer no more than two days after an inspection. Keep in mind that no home is perfect, even a new home. An inspector’s report will have a myriad of issues, ranging from major to minor.

If problems are found, the buyer could negotiate with the seller to either repair some of the problems, issue the buyer a credit to repair some problems themselves, or lower the purchase price. Or, if stated in the initial contract, the borrower could also back out of the deal penalty-free.


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