Purchasing a new home can be a little confusing, and differentiating between a home inspection and an appraisal can be one of those areas of your homebuying quandary. Knowing the difference between appraisal vs. home inspection is extremely useful as both serve different purposes and can benefit certain parties depending on their outcomes.
In this post, we’ll explore appraisal vs. home inspection and help you understand the differences between the two.
Appraisal vs. Home Inspection: What’s the Difference?
In as few words as possible, a home appraisal is generally ordered by the lender as a way to ensure that what they’re lending is, in fact, valued at the price the buyer is paying for it. A home inspection, on the other hand, is usually ordered by the buyer within about 7-14 days (depending on the state) of signing a contract.
On the appraisal side, the home appraiser will complete an evaluation of the property, look at other properties in the area, and ascertain what the fair market value of a home is. Inspectors are commissioned to comb over a house and look for structural, mechanical, and other issues that may cause problems down the road.
While appraisers are third-party entities, they are often keyed in on the contract’s price and will usually work within the confines of the agreed-upon numbers. Inspectors, however, are commissioned by the buyer to find any and every potential flaw with the property and generally can give the buyer some bargaining power and leverage for anything that needs attention.
Appraisal in Depth
Appraisals are the heart and soul of a real estate transaction. While, yes, agents generally set the listing price and negotiate a sale price, appraisers have the final word for what a property is worth. Typically, real estate agents will use a “per-square-foot” pricing model defined by sales data in a given neighborhood or residential area. Appraisers use historical data of sales as well as property values and potential property values to give a firm number to what the local appraisal district deems “fair market value” of a home.
As a buyer, you’re actually hoping that your home’s appraisal will come in higher than the contract price as it will give you some equity in the home before you ever begin your mortgage. On the flip side, an appraisal that comes in valued significantly under the contract price may cause a lender to back away or re-evaluate their position in your transaction.
Home Inspection in Depth
A home inspection is usually ordered by the buyer as a means to have the home 100% combed over for any particular or peculiar aspects that may cause problems in the future. Things such as structural damage, mechanical issues, and the like will be taken into consideration and may give you, the buyer, some leverage for concessions from the seller if there are significant discrepancies found.
If you’re buying a home, make sure to take note within the contract what amount of time you have to order an independent inspection of the property, and be sure to add any contingencies for irregularities found during the inspection. For the most part, most states have a general outline on the timeframe for which to order a home inspection usually ranging from 7-10 business days.
That said, don’t delay long at all in ordering an inspection and choose an inspector that is highly regarded and extremely thorough in your area. The last thing you want is a lackadaisical inspection resulting in you spending a lot of money and being on the hook for significant repairs.