What Is the Difference Between a Home Inspection and an Appraisal?
An inspection is a vital stage in the home-buying process. It evaluates the home's condition before finalizing the deal. It's also a separate stage from an appraisal, which is a professional estimate of the market value of the home you want to buy. In most circumstances, the lender orders an appraisal to validate or verify the worth of the residence before lending money to the buyer. Here's a breakdown of both and why they're both vital when it comes to buying a home.
Here’s the key difference between an inspection and an appraisal. Bankrate says:
“In short, while an appraisal helps you understand a home’s value, inspections help you understand a home’s condition.”
Before finalizing the sale, a home inspection is performed to assess the present state, safety, and condition of the home. If anything in the inspection process raises concerns, such as the age of the roof or the health of the HVAC system, you as a buyer have the opportunity to discuss and negotiate any potential faults or repairs with the seller before the deal is finalized. Your real estate agent is a valuable resource for navigating this stage of the process.
The National Association of Realtors (NAR) explains:
“A home purchase is typically the largest investment someone will make. Protect yourself by getting your investment appraised! An appraiser will observe the property, analyze the data, and report their findings to their client. For the typical home purchase transaction, the lender usually orders the appraisal to assist in the lender’s decision to provide funds for a mortgage.”
When applying for a mortgage, an unbiased appraisal (which the lender requires) is the best way to confirm the value of the home based on the purchase price. Regardless of how much you're willing to pay for a property, if you're financing it with a mortgage, the appraisal will help ensure that the bank doesn't loan you more than the home is worth.
This is especially important in today's sellers' market, as low inventory is fueling bidding wars, which can drive up property prices. When sellers are in a good position, they sometimes assume they can set any price they want for their home since competing buyers will be prepared to pay more.
However, the lender will only lend depending on the home's valuation. This is what keeps property prices under control. If there is any doubt or disagreement between the appraisal and the sale price, your experienced real estate agent will assist you in navigating any additional negotiations during the buying process.
The inspection and appraisal are important elements in the home-buying process, and you don't have to handle them alone. Let's talk today so you can get the expert advice you need to get through the entire home-buying process.