Appraisals vs Inspections

Many clients I provide services to – especially first-time home buyers – are often confused about home appraisals versus home inspections. Buying a home is a very complex and stressful process, and the many processes that take place along the way are easily confused. I’d like to take a moment to provide some clarity on what appraisals and inspections are, their purpose, and how they are different.

The purpose of a home inspection is to provide the potential home buyer with an objective overview of the home’s general condition prior to closing. Home inspectors, like myself, thoroughly inspect a home and point out any observed defects that may negatively affect the home’s safety, structural integrity, etc. While extremely important and a true “must” for anyone buying a home, a home inspection is actually never required by mortgage lenders, insurance companies, or other parties (although you should certainly consider it a requirement for yourself).

On the contrary, a home appraisal IS always required when a home is being purchased with a loan. Like a home inspector, an appraiser evaluates properties, but the difference is that the primary purpose of an appraisal is to determine the value of a home to ensure that the bank isn’t paying more money for a home than it is worth. This is why appraisals are always required. An appraiser does not inspect a home with a fine toothed comb the way an inspector does, but does look for any factors that may effect the home’s value.

Since home inspections are not required, they are never a “pass” or “fail” of the home. In fact, the home inspection report is owned solely by the client (typically the home buyer) and doesn’t even have to be shown to lenders, insurance agents, or anyone else. An appraisal, on the other hand, will be seen and evaluated by multiple parties related to the property transaction – primarily the lending institution. It’s easiest to understand the difference by viewing the appraisal as a benefit primarily for the lender (although it benefits the home buyer as well) and a home inspection as a benefit primarily for the home buyer.

Simply put, home inspections and appraisals are both very important but share some similarities and differences that are important to distinguish. Home inspections exist to identify defects in the home and educate home buyers on the condition of their potential investment, while appraisals exist to determine the value of a home and ensure the lending institution isn’t paying too much money for the property. A home appraisal can cause a lender to halt a real estate transaction, while a home inspection enables the home buyer to proceed with the purchase, negotiate for repairs or walk away, regardless of the appraisal result. In this sense, an appraisal can “fail” if the value of the property is determined to be less than the agreed upon purchase price, but a property can never “fail” under a home inspection.

Hopefully this post has provided some clarification on the differences between home inspections and appraisals. If you’re in the process of purchasing a home with a loan, know that while an appraisal will definitely happen it is also very important to have a home inspection performed. Both are very much in your best interest.

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Author: hillinspections

I am a Certified Master Inspector (CMI) and the owner and operator of Hill Property Inspections LLC, the top-rated inspection company in the greater Johnstown, PA area, based out of western Pennsylvania. I specialize in property inspections and environmental testing services and have a passion for helping my own clients and other families in learning to properly maintain their homes. I’m also the owner of Hill Pest Control, LLC and a pest management professional committed to helping our clients rid their homes and businesses of unwanted pests. I am an Army veteran, former State Farm Insurance Agent, and real estate investor with experience in all facets of real estate construction, transaction and insurance. I am also the founder and President of the Southwestern PA Chapter of the International Association of Certified Home Inspectors (InterNACHI) and an affiliate member of the Cambria-Somerset Association of Realtors (CSAR).

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