Home Inspection vs. Home Appraisal: What They Are and How They Can Benefit You

Home inspections and home appraisals can sometimes be confused for the same thing. While both assess the home, they do so for separate reasons and benefit in different ways. In this post, I'll go over the key differences between an inspection vs. appraisal and how they can affect one another.

What Is a Home Inspection?

A home inspection is a thorough examination of the home that assesses its structural integrity, its mechanical and electrical systems, plumbing and includes a look at the home's roof, ceilings, walls, windows, crawl space, and more. It determines the home's present condition and uncovers any potential red flags.

If you attend the inspection process, a professional home inspector will walk you through the process pointing out any issues or concerns they come across. Afterward, you receive a report of the findings listing all that was inspected and any required repairs. 

Once the inspection report is received, you may be able to negotiate with the seller to have them complete the repairs, pay part or all costs or provide credits so you may complete the repairs yourself after closing.

>RELATED: What to Expect From a Home Inspection in Charleston, SC

What Is a Home Appraisal?

A home appraisal is used to determine the estimated market value of a home. The property appraisal process considers location, the value of similar homes recently sold in the area (also known as comparables), and the current physical condition of the home with a visual inspection of the inside and outside.

A professional appraiser will provide a report which dictates the final determination of market value that lenders use to approve or deny the mortgage loan amount and are typically required for almost all loans. If the appraisal comes back lower than the offer price, the difference must be paid out-of-pocket by the buyer, a renegotiation must take place or the parties walk away from the deal. If the value comes back higher, well - you'll have more equity in the home right out of the gate.

How Are Home Inspections and Home Appraisals Different?

Several things differentiate home inspections from home appraisals - some are more obvious than others - but let's take a look at some of the most important:

• Home inspections determine the condition of a home while home appraisals determine the value of a home.
• Home appraisals are required by the lender while in most cases, home inspections are not
• Home inspections are the buyer's responsibility while the lender orders the home appraisal for you
• Home appraisals can impact your loan approval while in most cases, home inspections do not
• A real estate appraiser typically notes surface-level issues with the home while inspectors use specialized tools and training to locate any major issues
• Homebuyers are encouraged to walk through the home with the inspector while appraisers typically perform the service alone
• Inspectors will discuss things they find (or don't) during the process while the appraiser will only reveal findings in their completed report
• Inspections focus solely on the property itself while appraisals consider the current condition of the property, location, the lot, and current market trends
• Inspections are far more thorough in terms of assessing the condition of the home. Appraisers just want an overview of the home: age of appliances, if/when renovations were done, obvious signs of damage or neglect
• Inspectors will take several hours in the home while appraisers' time is usually much shorter
• Inspections protect you while appraisals are there to protect the lender, first and foremost

How Are Home Inspections and Home Appraisals Similar?

While several things differ between home inspections and home appraisals, there are also a few similarities to note which may be the source of some confusion. Let's take a look at those:

• Both benefit the homeowner AND the lender - they ensure the home is worth what you're paying and it's safe to live in
• Both uncover any potential issues that may affect the sale
• Both the inspection and the real estate appraisal help you as the buyer feel secure in your decision to buy or walk away from the home
• Both services are performed by a third party, so there's nothing to be gained or lost from the results so you can have confidence in the findings
• Both services are performed by a licensed home inspector and a licensed appraiser involve trained professionals performing a physical assessment of the property
• Both the inspection and appraisal typically occur shortly after a purchase contract is executed
• Both services are meant to protect the home buyer not the seller
• Both result in reports the buyer can potentially use to modify or negotiate the purchase contract for a price reduction as part of the home closing process

What Should I Get First? A Home Inspection or a Home Appraisal?

Usually, the home buyer will have a home inspection completed before signing any closing documents unless they've waived the inspection as part of the deal. You cannot waive a home appraisal when applying for a mortgage - so, in theory, a home inspection can be done before or after the appraisal. But in most cases, both will be done within a very similar timeframe before proceeding with the purchase of the home.

Who Pays for the Home Inspection and Home Appraisal in the Sale of a Home?

Unless otherwise negotiated, the home buyer will pay for both the inspection and the appraisal. As mentioned before the home buyer typically selects the inspector while the lender will order the appraiser.

Can I Waive a Home Inspection When Buying a Home?

Mortgage lenders offering conventional loans don't usually require an inspection while FHA and VA Loans will require them.

While in a lot of cases, it's up to the home buyer whether they have a home inspection done, I strongly recommend to all my home buyers that they have one performed. Here's why:

• Home inspections can potentially save you thousands of dollars in costly repairs (if not more) by having any issues addressed by the seller.
• While it doesn't offer any claim to the home's value, it does protect your investment and reduces your risk
• A home inspection helps determine if you should buy a home and make you confident in whichever decision it results in
• Participating in a home inspection helps you get to know your home much better
• If you're building a home, it helps to confirm proper construction practices have taken place

Can I Waive a Home Appraisal When Buying a Home?

If you’re applying for a loan, in most cases, you cannot waive a home appraisal. A mortgage company wants protection from losses by ensuring they don't loan more than the home is worth. But, the appraisal is not just for the lender as mentioned before. It helps you as the buyer understand if the home is really worth what the seller is asking for it.

If the appraisal comes in low, it presents the buyer an opportunity to negotiate the sales price. And, if it comes in high, the buyer now has additional equity in the home.

Final Thoughts

As you can see, the home inspection and the home appraisal are indeed two different animals. However, they both provide considerable benefits to prospective buyers, whether you end up purchasing the home or not. It shouldn't be appraisals vs. inspections, it should be appraisals AND inspections!

Both services provide you a complete picture of the home you're considering buying instead of simply taking the word of the seller or listing agent. A good Realtor® will include contingencies for the appraisal and inspection in your offer on the home so you have the leverage to renegotiate based on the findings from either report. And, for first-time homebuyers looking to avoid mistakes, I highly recommend both services for peace of mind. 

If you have any additional questions about home buying or selling, don't hesitate to contact me today!